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microeconomics

Joan Robinson (1903- 1983) studied microeconomic issues, such as pricing, consumer demand, producer supply, competition and monopolistic strategies. Her first major book was The Economics of Imperfect Competition, published in 1933. In the same year, Edward Chamberlin published The Theory of Monopolistic Competition.

Robinson restates the Marshallian contribution to price theory so as to examine the outcomes of imperfect competition. In her understanding, perfect competition is considered to be a very special case where buyers should have the same preferences and each buyer should deal with only one firm at any one time. If these conditions are fulfilled, an increase in the price of one firm would lead to a complete cessation of its sales if the prices of other firms remained the same.

Considering the markets where imperfect competition dominates, Robinson starts the analysis with a single firm in an industry. She clarifies that physical differentiation is not a necessary condition for market imperfection because two commodities may be alike in every respect except the names of the firms producing them. However, the market in which they are sold will be imperfect if different buyers have different scales of preference as between the two firms.

Imperfect competition in the markets affects the slope of the demand curve of an individual firm and of the industry. The first prerequisite of perfect competition is a product clearly demarcated from others, that is to say, the characterization of a perfect market depends on the clear demarcation of the commodity that is sold and bought. In particular, she examines how price discrimination and market segmentations policies influence the slope of the curve of the individual firm and the market equilibrium. Competition will be less perfect the lower is the elasticity of the total demand curve. Indeed, the form of the demand curve represents the degree of competition between the product of this industry and other products.

 

Besides, in a context of imperfect competition, the firm’s supply curve could express increasing, decreasing, or constant costs. As a result, the equalization of the marginal cost curve and the price as a condition of equilibrium is considered as the main problem in those imperfect markets.  According to Robinson, competition will be less perfect the higher is the ratio of the output of one firm to the output of the industry. If competition is imperfect, an increase in the output of one firm by one unit of its good would change the output of the industry and this may lead to a relevant change in the price of this good.

Robinson addresses that it is empirically true that a high level of normal profits will often be found where competition is imperfect.           The normal level of profits will be different according to the industry and the scales of production in the same industry because  the level of normal profits will depend upon the conditions of supply of the firm. An old-established firm enjoys a “good will” which turns out not only to enable the firm to influence the price of the commodity but also to set increasing costs of entry to new rivals. Powerful firms which use methods of “unfair competition” to strangle rivals are unlikely to sell in perfect markets. In these powerful firms, managerial decisions, including price discrimination and market segmentation, for instance, are practices oriented to increase market share and profits.

Joan Robinson’s microeconomic approach is still relevant to show the failures of a theory of value and distribution based on the assumptions of either perfect competition or perfect monopoly. In truth, her analysis of the monopolistic trends in contemporary capitalism sheds light on how powerful firms fix prices and strengthen  their power in the markets.

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