The efficient markets paradox: theoretical contributions of Steven C. Salop

Abstract

The purpose of this paper is to analyze Salop’s (1976) seminal proposal, in which the relevant market structure with imperfect information is not the one with perfect competition, but the one with monopolistic competition, with price dispersion. From the presentation of the perfect competition model, monopolistic competition model, Salop’s model and the main theoretical elements of this debate, alternative analyses based on studies of Akerlof and Grossman & Stiglitz are presented. In this regard, it will be shown that the results proposed by Salop, although considering the quality constant, are incompatible with the assumptions of neoclassical economics.