Perfect Competition and Sustainability – A Brief Note

Abstract

Purpose - Perfect competition (PC), despite its abstract nature, is central to the literature on shadow prices and remains an important benchmark in economic policy analysis. Adding sustainability to the conditions of PC, results in a meaningful benchmark, especially in the context of pursuing sustainability as a policy goal. On this basis, some standard explanations involving the comparisons with imperfect competition can be questioned. But, importantly the recognition of sustainability besides the standard conditions of PC provides the basis for expositing voluntary environmental stewardship. This paper aims to address these issues. Design/methodology/approach - The paper focuses on PC and sustainability (PCS) and PC and PCS vs monopoly. Findings - The implications of this simple analysis are at least three-fold. First, in the sphere of applied economics and policy analysis, PC has served as an important benchmark – especially in the shadow pricing literature dealing with project appraisal and cost-benefit analysis. The main argument in this paper is that PCS would prove to be a better benchmark because it would facilitate the choice of decisions that would satisfy the criteria for sustainability. Second, the recognition PCS prompts the reassessment of comparisons with imperfect market organizations such as monopoly. Within an unregulated context, monopolies, if able to exploit economies of scale, can expand output beyond the limits dictated by PC and PCS and hence compromise the possibilities of sustainability. Finally, and more importantly, the introduction of PCS as a benchmark enables the exposition of voluntary stewardship as a potential measure towards sustainability. Originality/value - The paper offers insights into PCS.