Imperfect Competition and the Theory of the Falling Rate of Profit

Peter Skott

Review of Radical Political Economics, 1992, vol. 24, issue 1, 101-113

Abstract: According to the Okishio theorem, profit-maximizing firms will not introduce new techniques which, when adopted by all firms, reduce the rate of profit. This paper presents a simple model which shows that this conclusion need not hold under imperfect competition. The model excludes working-class pressures for increased real wages - the supply of labor is infinitely elastic at a given money wage rate - and it is assumed that firms aim to maximize profits. It is shown that, if the economy starts from an initial position with a low organic composition, then the rate of profit will fall. Asymptotically, the profit rate approaches a long-run equilibrium value, but the model may explain some of the observed decline in profitability during the early stages of industrialization.

Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:sae:reorpe:v:24:y:1992:i:1:p:101-113

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