Saturday, August 31, 2013

Keen on Collusion (2)

In my previous post on monopoly vs perfect competition (Keen on Collusion) I discussed the findings of  Steve Keen's paper Emergent Effective Collusion in an Economy of Perfectly Rational Competitors [PDF] that computer simulations of the so-called Cournot-Nash solution of perfect competition fail to show the results that the theory predicts. Instead of price equaling marginal cost, output and price appear to converge to monopoly-levels even for hundreds of firms. I thought that this result was devastating. After all, the tale of monopoly vs perfect competition is one of the basic tenets of basic economic knowledge that appears in literally every single economics textbook on this planet. That a simple computer simulation disproves it must have hit the economics profession like a bomb shell. Or so I thought.

What I see instead is yawns, bored bloggers writing that this is old stuff, and anyway, so what? The blogger writing at Unlearning Economics says it best: "economic theory is disturbingly aware of its own flaws", which as a consequence turns what they teach into lies. If they know (as they claim they do) that the models they use to rationalize a certain preference (of competition over monopolies) don't actually produce the result they claim, and then even nonchalantly dismiss this fact, how can they not be liars if they continue to preach the very same gospel?

No comments:

Post a Comment