Chapter 7: Market Constraints Upon Firms: Vulnerability
Edited by Dimitri B. Papadimitriou
7. Market constraints upon ﬁrms: vulnerability In this chapter we wish to take up the eﬀect of alternative market structures upon the behavior of ﬁrms. Our aim is to develop a theory of the behavior of the ﬁrm which enables us to determine whether or not the amount of investment induced by changes in either cost or demand conditions depends upon alternative market conditions. Our problem is how these market structures aﬀect the value of the accelerator coeﬃcient. For our purposes market structures can be divided into three classes: competition, monopoly and the region in between, which is generally called oligopoly. In addition to the demand curves confronting a ﬁrm or an industry, we have available the modiﬁed cost curves (the iso-proﬁt curves) which were derived in Chapters 5 and 6. This apparatus enables us to use cost curves in a more meaningful and systematic manner than they have been used to date in the study of investment behavior. The aim of this chapter is to prepare the ground for an investigation of the relation between these alternative market structures and the eﬀects of shifts in product demand curves upon investment activity. We are not particularly interested in problems such as the relation between the price of products and the quantities produced under these alternative market structures, nor are we concerned with the question as to whether or not the equilibrium conditions derived for these alternative market structures closely approximate or are widely divergent...
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