The Value of Competition: A Study of the American Softwood Plywood Industry

Abstract

As knowledge of the factors involved in price determination and the importance of price-output behavior for social welfare has broadened, the gulf between price theory and social economic policy has paradoxically become wider. The theory of imperfect competition has shown up the weaknesses of classical price theory, but its implications for the social regulation of industry are not at all clear. The new questions which were posed by the work of Professor Chamberlin and Mrs. Robinson have been refined somewhat rather than answered. The widening gulf between economic theory and social policy has been due to the slow development of theory in two main areas: (i) price theorists have not been able to develop a comprehensive system of valid generalizations which link market structure, competitive behavior, and market results; and (2) pure theory has not progressed to a point where much can be said about norms of industrial behavior which maximize social welfare.' The concept of workable competition has emerged to partially fill the gap left by the demise of classical price theory. This concept represents an attempt to evaluate the implications for social welfare of economic activity which occurs in industrial situations which do not conform to the assumptions of pure or perfect competition. J. M. Clark, who first used the term, suggested that since the only possible forms of competition in the real world are imperfect, 'perhaps it would be useful to formulate concepts of the most desirable forms of competition, selecting those that are practically possible, within the limits set by conditions we cannot escape'.2 The criteria for the evaluation of workable competition which have been suggested by various writers fall into three categories: (i) market structure; (2) business conduct; and (3) performance results. This paper is concerned with the following question: How good