Kinds of competition

  1. Competition (often identified with perfect competition)
  2. Monopoly (or the lack of competition)
Harold Demsetz has counted only one page in 90 devoted to monopoly in The Wealth of Nations and only one in 500 in Mill’s Principles of Political Economy. (Stigler 2008)
   3. Monopolistic competition

Perfect competition

\(C=R\Rightarrow \Delta C=\Delta R \Rightarrow \Delta C=\frac{\Delta Q}{\Delta Q} P+\frac{\Delta P}{\Delta Q} Q \Rightarrow \Delta C=P+\frac{P}{\epsilon}\). For the market as a whole, this gives: \(P=MC-\frac{P}{n\epsilon}\)