An interesting point, but a destructive one -- just like the philosophy from which his contention springs (on that, more a little later). Like the concept of 'market failure,' which has no referents in reality but which is supposed nonetheless to perform a sort of heuristic function, neither does the doctrine of 'perfectly competitive markets' have any refererents in reality. None at all. Explains George Reisman:
No one has ever defined “pure and perfect competition”—the procedure is merely to present a list of conditions which it requires...
To summarize these conditions: uniform products offered by all the sellers in the same industry, perfect knowledge, quantitative insignificance of each seller, no fear of retaliation by competitors in response to one’s actions, constant changes in price, and perfect ease of investment and disinvestment...
Perfect competition, thus defined, probably does not exist, never has existed, and never can exist. . . . Actual competition always departs, to a greater or lesser degree, from the ideal of perfection. Perfect competition is thus a mere concept, a standard by which to measure the varying degrees of imperfection that characterize the actual markets in which goods are bought and sold.So neither concept actually exists -- neither 'market failure' nor 'perfectly competitive markets' -- yet both concepts are used to damn real markets by those who quite naturally do look for real referents for such terms. That's why they're anti-concepts: their use serves to destroy real concepts which (like all real concepts) do have real referents. As George Reisman expains,
The doctrine of “pure and perfect competition” marks the almost total severance of economic thought from reality. It is the dead end of the attempt to defend capitalism on a collectivist base.And so it is. It is also fuel for those who seek to shackle and to damn markets. The non-existence of 'market failure' and 'perfectly competitive markets,' which don't exist in the real world, are the anti-matter to real markets and to real businessmen who do.
If markets don't work in the ideal manner prescribed in their heuristic manner by this collectivist variety of economist, then so much the worse for markets say the regulators, who haven't hesitated to regulate, to shackle and to jail businessmen (who resolutely refuse to fit the economists' models and just keep on producing in the real world instead); and who continue to espouse the need for ongoing regulation in order to make the 'imperfect' markets fit the ideal dreamed up for them by ivory tower economists and utopian collectivists.
The doctrine of pure and perfect competion is called by George Reisman "platonic competition," since these destructive 'ideals' are a pure and perfect example of the Platonic "ideal of perfection" which draws from non-existence to serve as the "standard" for judging existence.
Reisman's two-part article on the subject make 'perfect' and very timely reading, and it does help to prove the contention that those who disregard philsophy are destined to be frequently bitten by it.
LINK: Platonic competition, Part I - George Reisman's blog
Platonic Competition, Part II - George Reisman's blog
TAGS: Economics, Philosophy, Objectivism