Imperfect Competition, Theory of

a petit bourgeois market theory that acknowledges the domination of the market by monopolies with the power to determine prices and exploit small private owners.

The theory of imperfect competition investigates from the viewpoint of bourgeois reformism and leftist Keynesianism the altered forms of price formation and profitability that accompany monopolization. Unlike the theory of monopoly competition, the theory of imperfect competition does not consider competition within the monopoly sector but instead examines price formation where conflicts arise between the emerging commercial-industrial monopolies and nonmonopolistic firms, that is, the processes by which monopoly profit is formed. The theory of imperfect competition emerged during the economic crisis of 1929–33 and was reflected in the works of J. Robinson.

According to the theory of imperfect competition, the maximization of current profit at the expense of other contracting parties in the market is both the direct motive and the basic characteristic of monopoly activity. Monopoly profit both exceeds average profit and remains outside the process of profit leveling. It was recognized that the formation of monopolies had led to disruptions in the operation of spontaneous economic regulators, that is, to “economic imperfection,” and thus state intervention was required. This conclusion coincided with the basic point made in J. M. Keynes’ theory on the necessity of state economic regulation.

The theorists of imperfect competition ascribed the social imperfection of the market mechanism and the emergence of exploitation to the fact that the monopolist, acting as either seller or buyer, receives surplus profit as the income of small capitalists, small landowners, or working people falls below the value of their “marginal productivity.” Exploitation of labor is in fact taken to mean not the extraction of surplus value by capital but rather the payment of inadequate wages, wages lower than what is considered the marginal productivity of labor. On the other hand, if powerful trade unions achieve wages that infringe on the “ordinary” profit of the owners of capital, then it is the workers themselves who are allegedly exploiting these small private owners.

In its present use, the term “imperfect competition” has increasingly been applied by capitalist economists such as P. Samuelson and R. Dorfman to the nonmonopolized sectors themselves. These sectors are saturated with small capitalists and feature high production costs and low profitability. Their transition to domination by “mature” monopolies is interpreted as allegedly ending the chase after excess monopoly profits and restoring the mechanism of competition in a more “perfect,” more efficient form. Criticism of the theory of imperfect competition among capitalist economists is directed not against such crude general theoretical premises as the theories of marginal utility and of factors of production but rather against its antimonopoly orientation.