Oligopoly, mutual dependence and tacit collusion: the emergence of industrial organisation and the reappraisal of American capitalism at Harvard (1933–1952)

Abstract

This article looks back at the early development of industrial organisation at Harvard. It seeks to understand the emergence of the “Harvard tradition” around the spread of a set of common and identifiable tools and concepts. The paper identifies a specific subject of study bringing together a group of economists. This is the hypothesis of “mutual dependence recognized,” which fosters the development of the theory of tacit collusion in oligopoly. This theory was developed by Edward Chamberlin and gradually taken up in several contributions from the 1930s and early 1940s by economists like Bain, de Chazeau, Galbraith, Kaysen, Mason, Schumpeter and Triffin. These authors, who all had connections with Harvard, appropriated Chamberlin’s theory in pursuit of four goals. First, the possibility of tacit collusion in oligopoly allowed them to provide theoretical grounds for explaining price rigidities. Second, the oligopoly issue fostered the development of new tools for identifying oligopolies and accounting for firms’ behaviour and strategic interaction. Third, these tools were regularly mobilised in debates among economists about the “basing point system”. This pricing method was used at the time in the iron, steel and cement industries and led these economists to address the question of how effective antitrust laws were. Fourth, it led some Harvard economists to entirely reappraise the very nature of mid-century American capitalism.