On Imperfect Competition and Macroeconomic Analysis

Since the publication of the General Theory there has been the lurking idea that substantial unemployment lasting for a number of years is associated with the existence of imperfect competition. In the late 1930s ideas such as ‘administered prices’ (Means, 1935), full-cost pricing (Hall and Hitch, 1939) and the ‘kinked demand’ curve theory (Sweezy, 1939) were concerned in different ways with the notion that prices were sticky, and that this stickiness of prices arose in the context of imperfection competition. To some degree these works interacted with the perception that Keynesian economics involved the assumption of sticky prices. During the 1950s the use of IS—LM analysis based on fixed prices could be justified by reference to the idea that under imperfect competition prices tended to be sticky (in some rather undefined sense). Some aspects of the Clower-inspired reappraisal of Keynesian economics also drew on the view that the source of sticky prices was the pricing policies under imperfect competition (see Malinvaud, 1977). Hicks’s distinction between fixprice and flexiprice market has some correspondence with the dichotomy between imperfect competition and perfect competition when he postulated that ‘[t]here are markets where prices are set by producers; and for those markets, which include a large part of the markets for industrial products, the fixprice assumption makes good sense. But there are other markets, ‘flexprice’ or speculative