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10. Monopoly and Competition > 3. The Illusion of Monopoly Price > C. Consequences of Monopoly-Price Theory

(3) A World of Monopoly Prices?

Is it possible, within the framework of monopoly-price theory, to assert that all prices on the free market may be monopoly prices?44 Can all selling prices be monopoly prices?

There are two ways in which we may analyze this problem. One is by turning our attention to the monopolized industry. As we have seen, the industry with a monopoly price restricts production in that industry (either by a cartel or a single firm), thereby releasing nonspecific factors to enter other fields of production. But it is evidently impossible to conceive of a world of monopoly prices, because this would imply a piling up of unused nonspecific factors. Since wants do not remain unfulfilled, labor and other nonspecific factors will be used somewhere, and the industries that acquire more factors and produce more cannot be monopoly-price industries. Their prices will be below the competitive price level.

We may also consider consumer demand. We have seen that a necessary condition for the establishment of monopoly price is a consumers’ demand schedule inelastic above the competitive-price point. Obviously, it is impossible for every industry to have such an inelastic demand schedule. For the definition of inelastic is that consumers will spend a greater total sum of money on the good when the price is higher. But consumers have a certain given total stock of money assets and money income, as well as a given amount, at any one time, which they may allocate to consumption spending. If they spend more on a certain good, they have less to spend on other goods. Therefore, they cannot spend more on every good, and not all prices can be monopoly prices.

There can never, then, be a world of monopoly prices, even assuming monopoly-price theory. Because of the fixity of consumers’ monetary stock and the employment of displaced factors, monopoly prices could not be established in more than approximately half of the economy's industries.

  • 44. This is the underlying assumption in Mrs. Joan Robinson's Economics of Imperfect Competition.