Price Takers' Plenty in a Model of Pure Capitalism.

Scitovsky, Tibor

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Document type:: Collected items

Collection:: Josef Steindl Collection

Title:: Price Takers' Plenty in a Model of Pure Capitalism.

Author:: Scitovsky, Tibor

Scope:: Kopie eines Typoskripts, 27 Blätter, mit handschriftlicher Korrektur und Korrektur mit Korrekturfolie, Paginierung von 5.1-5.20 und von 3.21-3.26

Year of publication:: 1983

Source material date:: [November 1983]

Language:: English

Note:: Draft.

Related work:: Scitovsky, Tibor: Pricetakers' Plenty: A Neglected Benefit of Capitalism. In: Kyklos, Dec 1985, Vol. 38 Issue 4, S. 517-516

JEL Classification:: D41 [Market Structure, Pricing, and Design: Perfect Competition]

Shelfmark:: S/M.33.7

Access:: Free access

5.11 the excess demand. The falling MVP function illustrates partly the physical limits to the firm's productive and employing capacity, and partly the limits beyond which the price reductions necessary to sell the extra output would eliminate the marginal profit. As to the former, let me recall the celebrated and well-known demonstration by Edward Chamberlin that competition among price makers' -- whom he called monopolists— creates excess capacity. He considered that a blemish, one of the harmful effects of monopoly; but in a changing and growing world it should really be considered an advantage, a source of limited flexibility* As to the latter, the economic limit to profitable price reductions, note that the scope for price reductions that render the hiring of additional workers profitable is the greater, the greater the price maker's monopsony power in the labor market; and note further that the MVP function, indeed this entire argument, is strictly microeconomic in nature, based on the assumption that all other things remain 'unchanged. Let me now transpose the argument to the macroeconomic plane. When the majority of employers in the majority of industries are price makers and all or most of them can find unemployed workers willing to accept employment at going wages, then the limits to the employers* combined excess demand for labor are considerably extended. For, if most of them employ additiczial workers, the additional income generated by their employment adds to effective demand and so diminishes the need for price reductions or additional sales effort, thereby extending the employers 1 ability to offer additional employment at a profit. In other words, when employers are the price makers in the labor market, they can profitably initiate a cumulative process that increases employment in much the same way in which the Keynesian multiplier increases employment.

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