Re: [OPE] marginal costs

From: Anders Ekeland <>
Date: Tue Dec 09 2008 - 13:44:37 EST


I think there is a lot more to be said about
increasing returns - which fundamentally takes
focus away from marginal prices - and towards
technological change (innovation), because that
is what makes us rich. Wether prices on computers
are close to marginal costs or not in a given
moment - not that important. But that new
generations of more environment- and user-friendly technology are created.

As many Marxists have pointed out - Luxemburg,
Mandel, Machover&Farjoun - there are elements of
planning - of solving technological problems -
satisfying user demand in a non-market -
sometimes creative and democratic way inside the
big MNCs, and "coming stars". Add to this the new
insights in user-driven (or "open") innovation
and you have a rich field of study of how
production is organized in real life.

How do these models where the principal aim is to
get prices close to marginal costs treat
technological change - the fact that the marginal
costs might vary considerably depending on the
"generation" of technology used?

Just curious.

At 09:21 09.12.2008, you wrote:

>The myth that Anders E. rightly points out is
>the consequence of an old ‘liberal
>progressive’ desideratum in the marginalist
>thought.<?xml:namespace prefix = o ns =
>"urn:schemas-microsoft-com:office:office" />
>This desideratum, which has been distorted by
>contemporary neoclassical economists, shows the
>desirability of expanding as far as possible the
>scale of production, which is attainable only
>when marginal costs equalize prices (I have to qualify this statement).
>In this scenario we would enjoy the cheapest
>goods and services, because we would overcome
>the main course of capitalism, i.e. the
>emergence of profit, because it is a failure to expand output.
>Pigouvian policy makers have proven to be
>incapable of attaining this desideratum in the
>framework of capitalist economies. The only way
>out is the mandatory price mechanism under Market Socialism.
>A. Agafonow
>De: Anders Ekeland <>
>Para: Outline on Political Economy mailing list <>
>Enviado: lunes, 8 de diciembre, 2008 20:26:13
>Asunto: Re: [OPE] marginal costs
>I have argued several times over that last 2-3
>years that this is a complete myth, due to
>increasing returns to scale, which is the
>dominant scale form under capitalism, it is the
>type of production function a profit maximizer
>would like to have - and consequently in the
>real world often achieves - since there is almost always some fixed costs.
>I think you will find this point in: Helpman,
>Elhannan and Krugman Paul R. (1993), ”Market
>Structure and Foreign Trade”, MIT Press. Where
>the recent Swedish Bank Memorial Prize Winners
>wrote: “The easiest form of scale economies to
>give a real world justification is increasing returns to scale”. (p. 32)
>I wrote a paper to the 2006 AHE conference
>related to this: "The text-book myth of the
>monopoly case" arguing that monopoly (large
>market shares) gives lower prices and higher
>volume - just the opposite of the
>"Wonderland-result" of ordinary text-books, i.e.
>high price low volume i. As soon as you see
>competition as a dynamic phenomenon this follows directly.
>Se also Baumol: "The free-market innovation
>machine" (2002) for the same point, the
>oligopolistic competition is the most welfare
>enhancing market form, But all market forms are
>transient, there are periods with many firms -
>competition leading to fewer firms when there is
>less radical technological change - and the
>"incumbents" being challenged by new
>technologies (main-frame monopoly by
>mini-computers, minis by PC's etc. etc. - the
>Herfindahl index changes over time!)
>Most text-books, f.ex Stiglitz&Walsh are schizo
>both preaching the dogma and having a series of
>concrete examples that increasing returns are
>important, leads to better price performance etc.
>At 18:38 08.12.2008, you wrote:
> > Below you can find a citation which claims
> that this is not the case in capitalist
> markets, and I agree:<?xml:namespace prefix = o
> ns = "urn:schemas-microsoft-com:office:office" />
> >
> >
> >
> > From the view point of the ‘perfect’
> competiompetition fallacy, competition would be
> ‘perfectââ‚€™ only if the entrepreneur
> were to expand the manufacture of eacch pattern
> up to the point in which the increment cost of
> production equals the marginal price that would
> be obtained on the market. Only then should he
> embark upon the production of a second pattern.
> […] In reality enntrepreneur find it moore
> profitable to stop producing a certain pattern
> before this point is reached and embarks upon
> the production of a second, a third, and many
> other patterns. He acts in this way because he
> wants to maximize his profits. (pp. 15)
> “Monopoly Pricesesâ€ï¿½, The Quarterly
> Journal of Austrian Economics, vol.. 1, nº
> 2, 1998. <>
> >
> >
> >
> >
> >
> > But on the literature? You can find in every
> mainstream Microeconomics book just the opposite statement.
> >
> >
> >
> > I argue in my dissertation that this
> equalization is desirable, but only possible in a Market Socialism.
> >
> >
> >
> > Regards,
> > A. Agafonow
> >
> >
> > De: Paul Cockshott <<>>
> > Para: Outline on Political Economy mailing
> list <<>>
> > Enviado: lunes, 8 de diciembre, 2008 17:10:23
> > Asunto: [OPE] marginal costs
> >
> > I seem to recall that a couple of years back
> there was discussion here refuting the following neo-classical position:
> >
> > "A competitive firm equates its marginal cost
> to the market price of its product. The
> equality of marginal cost and price is a
> fundamental efficiency condition for the
> allocation of resources. When the condition
> holds, the purchasers of the product equate
> their marginal rates of substitution to the
> corresponding marginal rates of transformation.
> By contrast, under monopoly or oligopoly, the
> allocation of output will be inefficient
> because price will exceed marginal cost."
> >
> > Can anyone remember it more precisely?
> > _______________________________________________
> > ope mailing list
> > <>
> >
> >
> > _______________________________________________
> > ope mailing list
> > <>
> >
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Received on Tue Dec 9 13:48:17 2008

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