5.18
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Also, if the price maker’s quantity adjustments exhaust the limited
scope he had for making such adjustment at a profit, he restores his
potential for profitable quantity adjustments every time he his
prices, because he will always set them at their most profitable level,
which is above the MC of what he sells and below the MVP of what he buys*
Employment creation through quantity adjustment has its counterpart
also\..in product markets and may there be called product creation and
quality adjustment. For part of the fringe benefits created by nonprice
competition among sellers is their search for buyers* unfilled needs, for
new products and improvements of existing products for which there exists a
profitable potential market, waiting to be opened up. That is an important
source of technical progress and growth, which again is a manifestation of
the producers* excess supply, created by the gap, in this case the potential
gap between price and MC. To put it succinctly, R&D is unprofitable
without producers* domination of product markets*
Let me now relate the theoretical model to today’s reality* I think it
describes pretty well what happens in product markets, where sellers continue
to dominate* In factor markets, however, price makers and price takers have
more or less changed places; and there is an excess supply of labor rather than
an excess demand, and nonprice competition for labor is not much in evidence,
except in Japan and a few So
markets, certainly Japan*s,
exceptions are important &&
with the way in
which factor markets have changed fore discussing the Japanese easel