Monthly archives of “March 2019

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Profit, Perfect Competition and Actual Competition

The problem of profit is one way of looking at the problem of the contrast between perfect competition and actual competition…The key to the whole tangle will be found to lie in the notion of risk or uncertainty and the ambiguities concealed therein…The essential fact is that “risk” means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomenon depending on which of the two is really present and operating…It will appear that a measurable uncertainty, or “risk” proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all. We shall accordingly restrict the term “uncertainty” to cases of the non-quantitive type. It is this “true” uncertainty, and not risk, as has been argued, which forms the basis of a valid theory of profit and accounts for the divergence between actual and theoretical competition.

– Frank Knight, Risk, Uncertainty and Profit