Price makers and nonclearing markets

Abstract

In a recent survey article, Benassy argues that fixprice theory holds the key to incorporating monopoly and monopolistic competition into general equilibrium theory. This paper argues that the opposite is true. Fixprice theory is an impediment to incorporating monopoly into general equilibrium theory. The reason for this is that fixprice theory virtually jettisons Walras's law. It is demonstrated that Walras's law makes the general equilibrium analysis of monopoly very tractable, although it was long thought that monopoly and general equilibrium were incompatible.