Negishi’s vision: Market power in general equilibrium and in the macroeconomy

Augustin Cournot’s Recherches sur les principes mathématiques de la théorie des richesses (1838) is a major milestone in the development of economic thought.1

Its chapter V (Dumonopole) creates the theory of amonopolistic firm that we keep teaching our freshman students after 170 years. Among several points that we keep repeating in our classrooms, he emphasizes that marginal costs are decreasing for many firms with monopoly power. Chapter VII (De la concurrence des producteurs) develops the theory of oligopoly with quantity competition, first for twofirms, and then for nfirms. ChapterVIII (De la concurrence indéfinie) explains how, as firms become negligible in their market, the outcome is competitive, with prices equal to marginal costs, and he points out that then marginal costs cannot be decreasing. Chapter IX (Du concours des producteurs) introduces price competition between the suppliers of intermediate goods, conceptually and graphically distinguishing between the cases that we now call, following Jeremy Bulow et al. (1985), strategic complements (Cournot’s Figure 7) and strategic substitutes (Figure 8).2