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Volume :20 Issue : 1 1992      Add To Cart                                                                    Download

Market Prices in Islam: Perfect Competition or Monopoly?

Auther : Abdul Hamed Mahboub

 

There is little literature on price theory or the theory of value in Islamic economics. Questions concerning whether the price formation mechanism in an Islamic economy is the free interaction among economic agents or the will of a central national committee, the role played in this by Islamic norms and legislation’s, and the relationship between public and private interests are left unresolved. This paper applies the theory of contestable markets to show that Islamic legislation concerning market transactions leads to product prices being equal to the average cost of production, regardless of the number of producers. In all cases, economic profits disappear and normal profits only are earned. This is a result of having an Islamic “perfect market”, which is characterized by free entry and complete knowledge of market conditions. While private interest is respected, public interest is guaranteed through the tendency of prices of prices of move towards the minimum average cost.

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