Perfect Competition

In his 1987 entry on ‘Perfect Competition’ in The New Palgrave, the author reviewed the question of the perfectness of perfect competition, and gave four alternative formalisations rooted in the so-called Arrow-Debreu-Mckenzie model. That entry is now updated for the second edition to include work done on the subject during the last twenty years. A fresh assessment of this literature is offered, one that emphasises the independence assumption whereby individual agents are not related except through the price system. And it highlights a ‘linguistic turn’ whereby Hayek’s two fundamental papers on ‘division of knowledge’ are seen to have devastating consequences for this research programme.