Wednesday, April 27, 2016

Why Competition Does Not Eliminate Rent Seeking

The Booth School of Business at the University of Chicago is one of the citadels of free competitive markets.  The basic idea is that market competition produces ideal outcomes.  Sellers make fair profits and buyers maximize the value that they receive from their purchases.  Robert Shiller makes a counter argument in this interview.  He suggests that competitive markets force sellers to deploy marketing techniques that rely upon deception in order to stay in business.  In other words, excessive profits, or rents, are not unique to markets with low levels of competition such as monopolies or highly concentrated industrial structures known as oligopolies.  Marketing techniques are designed to take advantage of known levels of awareness and irrationality among consumers particularly in highly competitive markets.  Shiller provides numerous examples to make his point that competition between sellers does not make markets more fair than less competitive markets.

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