Abstract
In contrast to classical theory, modern (post-Chamberlin) theory has been preoccupied with demand questions even in the analysis of long-run situations. This may be seen as the natural consequence of theorists grappling successively with the increasing returns dilemma and with the oligopoly dilemma as briefly explained in Part I. Nevertheless, and paradoxical as it may seem, it is on the demand side that the modern development of the theory of the firm is most open to criticism. The critique presented in this half of the book, will, therefore, be especially directed at the analysis of demand functions. It will, however, be necessary to discuss a number of other factors whose consideration by orthodox theorists has tended, in my view, to be subordinated to a widely-felt methodological necessity that all analytical conclusions should conform to the Procrustean bed of marginalist-equilibrium equations.
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Notes
Equations of these types may be applied to other problems besides the determination of output, notably capital investment. Modern discussion of capital investment has, however, generally been remarkably untroubled by the cares which beset price/output theory. It must, of course, be the case that every investment decision incorporates some assumptions about the prices at which the resulting outputs will be sold and that many price/output decisions imply correlated capital investment. And so, as the Austrian school brilliantly demonstrated, price/output theory and capital investment theory are but two aspects of the same analysis which must be consistent as between them. In this present discussion we shall, however, confine ourselves to the price/output analysis which has been the chief preoccupation of marginalist equilibrium theory. (Elizabeth Brunner and I discussed orthodox investment theory in chapters i and x of our Capital Development in Steel and in a paper for the Oxford Economists’ Research Group, in an unpublished symposium with Harrod and Champernowne, while we were members of that body. Ref. also A. Lamfalussy, Investment and Growth in Mature Economies Macmillan, 1961.)
The market for refrigerators would appear to show that, where consumers’ requirements are met by simple standards, standardized products emerge even from different manufacturers. See also the interesting paper by N. H. Leyland, ‘A Note on Price and Quality’, Oxford Economic Papers (New Series), June 1949.
See, especially, J. Johnston, Statistical Cost Analysts (McGraw Hill, 1960), where a good deal of other work is also discussed. We may note
Ref. I. M. D. Little, ‘Higgledy-Piggledy Growth’, Bulletin of the Oxford University Institute of Statistics, 1962.
For earlier statistical work of a similar interest see H. Secrist, The Triumph of Mediocrity in Business (Bureau of Business Research, Northwestern University, 1935).
Henry Smith, Retail Distribution, A Critical Analysis (Oxford University Press, 1948).
W. G. McClelland, Studies in Retailing (Basil Blackwell, Oxford, 1963).
Richard H. Holton, ‘Price Discrimination at Retail: the Supermarket Case’, Journal of Industrial Economics, October 1957.
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© 1964 P. W. S. Andrews
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Andrews, P.W.S. (1964). A Critique. In: On Competition in Economic Theory. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-81682-8_3
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