Price Flexibility and Industrial Concentration

Abstract

That prices are more flexible under competitive conditions than under monopoly has been a popular idea in economics for many years, and is commonly expounded in the undergraduate classroom.2 During the nineteen thirties inductive studies were undertaken which appeared to validate this proposition.3 These findings did not go unchallenged, but a large share of the criticism was directed at the inaccuracies of the data and the inconclusiveness of the proofs rather than at the underlying theoretical assumptions.4 On the other hand, using a different statistical approach, other writers have tried to demonstrate that there is little or no relationship between the degree of price flexibility and the degree of monopoly, thus apparently contradicting the more generally held notions. In a most impressive effort in this direction, Professor Richard Ruggles compared changes in indices of direct costs with changes in price indices for various economic sectors during the 1929-1931 period.5 These comparisons demonstrated that the degree of price flexibility depended upon factors other than industrial concentration. Previous to this, Dr. Alfred Neal had compared prices and direct costs for the four year period 19291933 in 106 industries.6 Those comparisons which showed constant absolute