Competitive Prices, Normal Costs and Industrial Stability

Abstract

This chapter presents a simplified model of normal-cost price theory. It will be concerned with the positive theory of the firm and the competitive industry which Andrews developed first in 1949, in consequence of our empirical studies, as an alternative to the static marginalist micro-equilibrium theory of the firm.¹ There is, clearly, an investment theory parallel to the price theory, and we have published an outline of such a theory.² More recently, the same system of thinking has been applied in retail trade theory.³ But today, as I have indicated, I shall not look beyond the theory of manufacturers’ prices, seen as determined by long-run factors (or, at all events, non-short-run factors). It is a general model, and is only presented in outline here, but I hope it will show some of the interesting things which we think we can handle.

Given as a paper to a seminar at Harvard University, March 1966.