Chapter 34 Chapter 5 The Meaning of Competition-3

three Perhaps we can learn more about the process of competition if we forget for a moment the arbitrary assumptions that underlie the theory of perfect competition and ask whether competition is less important if no two commodities are identical The nature and significance of this would be worth considering carefully if it were not for the difficulty of analyzing a situation in which different commodities cannot be easily classified.But we have to deal with a series of close substitutes, each of which is different from the others, but this difference does not significantly stop the substitution.The results of the analysis of competition in this case correspond in many respects more to the conditions of real life than those of an industry which produces the same commodity quite different from all other commodities.Or, if the fact that no two commodities are identical is considered too extreme, we can at least look at the case where no two producers produce identical commodities, not only in personal services, but in many markets for manufactured goods. , such as books, musical instruments, etc., as well.

For our purposes I need not attempt to analyze such a market at all, but merely to ask what role competition will play in such a market.Although, to a considerable extent, the outcome is of course uncertain, the market will nonetheless develop a price system in which each commodity is just cheaper than its potential close substitute. It is by no means a small matter, since such a system of prices cannot even be discovered except by trial and error in the market, where each market participant gradually learns about the situation.Of course, in such a market, the degree of consistency between price and marginal cost generally only reaches the situation where the elasticity of demand for each commodity is close to the situation assumed by the theory of perfect competition, or the situation where the elasticity of substitution between different commodities is close to infinite.But the important thing is that this situation has nothing to do with this standard of "perfection" as an ideal or goal.The basis for comparison as the basis for judging the outcome of competition cannot be a situation different from objective facts and cannot be brought about by known methods, but should be the situation that would exist if competition were prohibited from functioning.The standard should not be the attainment of impossible goals and meaningless ideals, but the improvement of conditions that would exist without competition.

In this case, the conditions of "free" competition in the traditional sense are compared with those that would exist if only those licensed by the authority could produce a particular thing, or if the price was fixed by the authority, or both. , what would be the difference?Undoubtedly, in the absence of "freedom" not only are things impossible to be produced by those who know how to produce them best and can produce them at the lowest cost, but that all things that consumers like best (if they have If there is a choice), it is impossible to produce them all.Also, the actual price has little to do with the minimum cost of producing these goods.In fact, in this situation, the choices available to both producers and consumers, and their data, are completely different from those available under competition.

The real question here is not whether we will get certain goods and services at a certain marginal cost, but rather what goods and services satisfy people's needs most cheaply.So, solving socioeconomic problems in this area is always about exploring uncharted territory, trying to find better ways of doing things than before.This will always be the case as long as there are economic problems to be solved, because all economic problems are caused by unforeseen changes to which one must adapt.Only situations that we did not foresee and were not prepared for require new decisions.If there is no need for this adaptation, if at some point we know that all change has stopped and things will always be as they are now, then there will be no resource utilization problems to solve.

A person who has mastered the know-how and skills that enable him to cut the production cost of a commodity by 50% can still make a great contribution to society if he can produce the commodity and cut the price by only 25%.This contribution is not only through price reductions, but also through additional cost savings.But only through competition can we conceive of these possible cost savings.Even if in any case prices were just low enough to bring out producers who did not possess these or other considerable advantages, so that commodities could be produced as cheaply as possible, though many commodities might be sold at prices considerably above cost, This may still be an outcome that cannot be achieved otherwise than by letting the competition unfold.