Chapter 6 Market Structure and Economic Policy

It actually goes without saying that the theoretical picture inferred in the first four chapters of this book does not directly describe reality. It shows in fact the relationships between market participants, prices and quantities sold that potentially also exist in the actual economy. However, economic agents, as we encounter them in reality, do not behave according to abstract, rational calculated patterns that follow our “individua oeconomica”. They are more or less unaware of rivals’ responses to them or to the difference between the “position of dependence” and “position of independence” or the marginal curves for bilateral monopolies, etc. The basic principles behind the free market capitalist economy also apply in reality and likewise are by no means unrestricted, as in the theoretical model – ideas such as a “fair price”, a fair profit mark-up expressed as a percentage of the price, frowning on “exorbitant prices”, necessity, paying “decent” wages, making it impossible to put workers out on the street, etc. more or less dominate real economic life and achieve a “similar equilibrium” state where abstract theory deduces instability from the assumptions of free market capitalist economy.