Munich Personal RePEc Archive

Price, target rate of profit and entry preventing

Jael, Paul (2015): Price, target rate of profit and entry preventing.

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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

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