You are right, I gave a straightforward neo- classical answer. I agree that there are criticisms to be made about insisting upon the conditions of perfect competition and perfect knowledge, in the real world. However, they are useful concepts to begin with, in order to establish the idea of consumer sovereignty, that is, that in a "frictionless" universe, firms prosper by ensuring customer satisfaction. Divergences from that ideal are fairly obvious, and would immediately be raised to undercut the idea of consumer sovereignty, and therefore the idea that the free market is benign.
Now, you are correct, the ideal of perfect knowledge is limited by what it is worth to the consumer to try to achieve it. Only someone with appropriate technical knowledge can use a lot of the information currently provided, and most people do not have the time or patience to pore over reviews or visit all possible outlets. Additionally, there is a degree of uncertainty in evaluating available information. Most of us have the experience of finding contradictory product reviews, or buying a computer only to find the price slashed six months later. Thus, it might be better to speak of a sufficiency of information, rather than perfect knowledge, so that consumers might make reasonable choices.
In the case of perfect competition, one cannot dismiss the arbitrary effects of location, for example, as bearing on sales, even when a product may be better priced. Again, it is more a concession to reality, which is that luck is unaccountable, and advantages serendipitous, so there is generally no sense in trying to equalize situations. Competitors will generally have different strengths and weaknesses to exploit, or a run of bad luck might be followed with a run of good luck. Besides, strictly speaking, it is only necessary to have two competitors to have consumer sovereignty. We may regard that as the modified desideratum: that over an extended period of time, there be at least one competitor that constitutes a threat to the leader, or, to put it more succinctly, that there should be adequate competitive pressure. (For every Coke, there is a Pepsi, for every Hertz an Avis, for every MacDonald's a Burger King).
Sufficient information and adequate competitive pressure will not have results as efficient as those in the ideal world, but they are the best we can achieve in practice, and still ensure a fair degree of consumer sovereignty....... |
