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Price, target rate of profit and entry preventing

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  • Jael, Paul

Abstract

Since the marginalist controversy held from 1939 to the mid-fifties, the full cost principle presents itself as an alternative to the marginalist theory of the producer’s equilibrium, without being able to shake its dominance. Yet, through decades, empirical investigations are rather favourable to it. Its rationality has not been sufficiently emphasized; so, orthodoxy was able to belittle it as an empirical practice compatible with its own precepts. The present article shows that three principles stated by the full costers and their successors would allow to build a sound theory of full cost pricing. These are: - preventing entry of new competitors; - target rate of profit; - competitive price leadership The article proves that full cost pricing is more conducive to profit maximization than marginalist rule, especially in the case of a competitive market with few suppliers, a market structure usually neglected by microeconomics. Opponents to full cost pricing often consider changes in demand as its Achilles heel. The present article analyses this problem in depth

Suggested Citation

  • Jael, Paul, 2015. "Price, target rate of profit and entry preventing," MPRA Paper 65970, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:65970
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    File URL: https://mpra.ub.uni-muenchen.de/65970/1/MPRA_paper_65970.pdf
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    References listed on IDEAS

    as
    1. F. S. Lee & J. Irving-Lessmann, 1992. "The Fate of an Errant Hypothesis: The Doctrine of Normal-Cost Prices," History of Political Economy, Duke University Press, vol. 24(2), pages 273-309, Summer.
    2. Godley, Wynne A H & Nordhaus, William D, 1972. "Pricing in the Trade Cycle," Economic Journal, Royal Economic Society, vol. 82(327), pages 853-882, September.
    3. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215-215.
    4. Jael, Paul, 2014. "Full Cost, Profit and Competition," MPRA Paper 59630, University Library of Munich, Germany.
    5. Philippe Mongin, 1992. "The “Full-Cost” Controversy of the 1940s and 1950s: A Methodological Assessment," History of Political Economy, Duke University Press, vol. 24(2), pages 311-356, Summer.
    6. Lee,Frederic S., 2006. "Post Keynesian Price Theory," Cambridge Books, Cambridge University Press, number 9780521030212, December.
    7. Nubbemeyer, Elmar, 2010. "A Reconsideration of Full-Cost Pricing," Munich Dissertations in Economics 12313, University of Munich, Department of Economics.
    8. Bhagwati, Jagdish N, 1970. "Oligopoly Theory, Entry-prevention, and Growth," Oxford Economic Papers, Oxford University Press, vol. 22(3), pages 297-310, November.
    9. R. L. Hall & C. J. Hitch, 1939. "Price Theory And Business Behaviour," Oxford Economic Papers, Oxford University Press, vol. 0(1), pages 12-45.
    10. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    11. J. N. Bhagwati, 1970. "Oligopoly Theory, Entry-Prevention and Growth," Working papers 47, Massachusetts Institute of Technology (MIT), Department of Economics.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    pricing; competition; market structure; full cost;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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