Micro-founded institutions and macro-founded Individuals: The dual nature of profit

Starting from the observation that surplus-value is almost always due to the collective undertaking of non additively separable human capital investments, this paper introduces a theory of the institutional structure of production where groups are taken as units of analysis in a multi-level competition framework that conceptualizes a mutually-determining co-evolution between individuals and institutions. The main result is that monopoly profit is not the only meaningful notion of profit besides the value of individual contribution, and consequently that free-entry and competition do not necessarily wipe it out. The intuition behind the ‘purest’ case where the incumbent’s profit does not arise from his uniqueness but only from the production process, is that the entrant has no incentives to undercut because he can earn the same profit by doing exactly the same thing.