PRICE–TAKERS VS. GREAT NUMBERS: RETHINKING THE EDGEWORTH–WALRAS CONVERGENCE ON PERFECT COMPETITION `A LA DEBREU–SCARF

Andrés Alvarez (), Diana Guevara, Juan Pablo García Rubiano () and Edwin López

DOCUMENTOS DE TRABAJO - ESCUELA DE ECONOMÍA from UN - RCE - CID

Abstract: This paper is part of a larger research project on the evolution of the Perfect Competition concept in a historical perspective. We try to follow the changes this concept has gone through from the different alternative views during the so–called “Marginal Revolution” towards the consolidation of the price–taker hypothesis. Some recent theoretical developments have underlined the importance of giving up the hypothesis of price taking agents.1 These developments plead for a different conception of the theoretical functioning of the market. This implies to model a perfectly competitive market based on strategic behaviour rather than using the traditional Walrasian conception of agents. These works intend avoiding the common trend in economic theory where imperfect competition is ncreasingly taking the place of perfect competition as the general framework because of, as has been stated by Arrow (1959), if we accept the price–taker hypothesis as the equivalent of perfect competition we have no other alternative than to introduce the Walrasian auctioneer. This ’pessimistic view’ on perfect competition pushes Arrow to postulate that in order to give a more realistic interpretation of economic reality (without the fiction of the centralizing auctioneer) we need to build imperfect competition models. The only difference with the basic Walrasian competitive model being the abandonment of the hypothesis of price–taker agents.

New Economics Papers: this item is included in nep-com, nep-hpe and nep-mic
Date: 2009-01-13
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