The Benefits of Asymmetric Markets

Economists are often so mesmerized by the magic of perfect competition that they neglect or fail to notice other, equally important achievements of the real market economy around us, most of which seem to result from monopoly tempered by competition and competition tempered by monopoly. Here, we dro...

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Bibliographic Details
Published in:The Journal of economic perspectives 1990-01, Vol.4 (1), p.135-148
Main Author: Scitovsky, Tibor
Format: Article
Language:English
Subjects:
Division of labor
Economic benefits
Economic competition
Economic theory
Economists
Equilibrium
Knowledge
Market economies
Market prices
Monopolistic competition
Monopoly
Monopoly power
Nonprice competition
Perfect competition
Power
Profits
Specialization
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Summary:Economists are often so mesmerized by the magic of perfect competition that they neglect or fail to notice other, equally important achievements of the real market economy around us, most of which seem to result from monopoly tempered by competition and competition tempered by monopoly. Here, we drop the one assumption underlying general equilibrium theory that does perhaps the most violence to reality: that all economic agents possess all the market information relevant to the transactions they enter or contemplate entering into. Knowledge is power, and those on the better informed side of the market can exploit the people on its other side. Such power is the main source of monopoly power, its exploitation yields monopoly profit, and rivalry among market participants who wield such power is the main form of monopolistic competition. The root cause of the unequal distribution of knowledge between buyers and sellers is the division of labor, which causes everybody to know more than others about their own specialty and less about other people's specialties than others know about them. The farther the division of labor proceeds, the wider becomes the gulf between the specialist's knowledge and the nonspecialist's ignorance of each specialty. Such disparity in the knowledge and preparedness of buyers and sellers to deal with each other and to stand up to each other is an important and unavoidable feature of today's market economy, which has received surprisingly little attention.
ISSN:0895-3309
1944-7965
DOI:10.1257/jep.4.1.135