Econ 101 ignores 50+ years of economic science

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Re-post of a core Economic Forces idea that is worth repeatingEcon 101 is behind the times. No, I don’t mean because it’s too free-market or doesn’t include behavioral economics, feminist economics, game theory, or any of the other things every article complaining about Econ 101 mentions. The major problem with most Econ 101 courses is that they take an outdated and successfully refuted approach to market structure and how prices are determined. As a price theory guy, that makes me sad.Here’s a standard course or textbook: After focusing on perfect competition for one-third of the semester, the focus moves to the monopoly model. What supposedly differentiates these two situations is the market structure. Competition involves many buyers and sellers; monopoly has only one seller. From that starting difference, all the other results flow: competition is efficient, monopoly is inefficient, etc.The problem? This approach, which used to be common in economics research, has been thoroughly discredited within the relevant economics subfield: industrial organization (IO). 50 years ago, Harold Demsetz taught economic researchers the errors in a little paper, “Industry Structure, Market Rivalry, and Public Policy.” It’s time for Econ 101 to learn the lesson.Pre-Demsetz: The Old Structure-Conduct-Performance ParadigmBefore getting to how we teach 101, it’s worth doing a quick recap on the history of industrial organization. Pre-Demsetz, the structure-conduct-performance (SCP) paradigm had an intellectual monopoly in IO. Monopoly. Get it?The big name in this area was Joe Bain, but some…