Imperfect Competition on a Long-Run Basis

Abstract

r.T_HE received doctrine of imperfect competition is an impressive conI struct of a consistency theory of truth. As a logical structure, it proceeds in orderly fashion from premises to conclusions but retains throughout a greater degree of consistency with itself and its private premises than with the external world which it originally set out to depict. Elsewhere, too, economics may be guilty of a certain schizophrenia implied in a consistency theory of truth (at least as applied to an external world). Equally guilty, perhaps, are the other social studies, including philosophy itself. In economics, at least, reliance on consistency as a guide to truth is not entirely a voluntary matter. In such fields as the study of imperfectly competitive behavior, certain of the data needed to test empirically the conclusions of the relevant economic theory or to determine directly the realism of its premises are private secrets of the inner circle of corporate management. Into the inner circle the professional economist may usually gain admission only after a tacit pledge of secrecy or such prior evidence of sympathy with the interest as would lead neutral circles to discredit the bulk of his subsequent testimony. (The ordinary interlude of business experience in the academic economist's career, spent in the outer darkness of shop, personnel office, or research department of some concern, usually provides on these fundamentals only rumor and gossip, more concrete and concentrated than the Sunday supplement stuff available to the more cloistered of the profession, but hardly superior in reliability.) Debarred to a greater or lesser extent from consistency with reality, the theory of imperfect competition has taken refuge in consistency with itself. The result has been essentially a short-run analysis, parts of Professor Chamberlin's Monopolistic Competition providing a noteworthy exception. The basic ingredient has been a maximization of short-run profits by an equalization of short-run marginal revenues and costs. It has been under growing attack from at least two directions,3 since World War II lifted for government and academic econ-