Competition, Welfare and Macroeconomics: A Classical/Sraffian Perspective

The paper reflects on two phenomena seen by orthodoxy as key defining characteristics of imperfect competition: product differentiation and restricted mobility of resources. Product differentiation is first considered in terms of its significance within a Sraffian price model. This in turn allows one to consider the ‘welfare’ effects—considered here in terms of the impact on output per worker—of a degree of monopoly power, to the extent this is conferred on producers by product differentiation. Restricted mobility of resources on the other hand is considered in terms of its impact on the level and pattern of sectoral profit rates and via this on income-expenditure multipliers and hence aggregate output per unit of autonomous demand. Both parts of the analysis suggest that, at least from a Sraffian standpoint, no hard and fast conclusions can be drawn about the welfare effects of product differentiation or restricted mobility of resources; in turn casting doubts on more orthodox claims about the welfare impacts of imperfect competition.