An Approach to a Price Theory for a Changing Economy

An Approach to a Price Theory for a Changing Economy

An Approach to a Price Theory for a Changing Economy

An Approach to a Price Theory for a Changing Economy

Excerpt

Although this is an essay in the "pure" theory of "pure" competition, it began as an empirical study of monopolistic markets. It was the writer's belief that a study of prices and price policies in capital goods industries would help to extend the insights suggested by the theorists of monopolistic competition. The chief questions with which the data were approached were: what are the relations in these markets between prices and marginal costs and why do they have such relations? No direct measurement was attempted but reliable indirect evidence was sought.

The questions proposed were, of course, only too natural to one who had drunk so steadily at the neo-classical well. But whatever the importance of the questions, they proved, as in retrospect it appears they had to prove, a tactical mistake for the program of study in hand. An empirical study could throw only the most oblique and faint light on marginal costs and the state of demand, and even less on businessmen's notions of these conditions. The relations which are so important in their bearing on judgments of economic efficiency and public policy led to a cul de sac when used as the organizing concepts in an empirical study.

Continued study of the material did, however, yield a notion which bore development in a reconsideration of the theory. One of the obstacles in the way of reconciling the theory and the "facts" seemed to lie in a critical lack of generality in the assumptions on which the neo-classical hypothesis was based. The theorists of monopolistic competition secured their results by asking what was the most reasonable way of businessmen to act when conditions of demand and cost are stable. In such conditions one may well expect that prices would be substantially those which an independent monopolist would set. But one of the most pronounced characteristics of business is change in these conditions. The pursuit of this line of thought led the . . .

Author Advanced search

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.