METHODOLOGICAL PROBLEMS IN TEE ANALYSIS OF MCNOPOLGID MARKETS DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University CHARLES EVERETT HELPPXE, B. S. ****** The Ohio State University 1959 Approved fcyt PREFACE There is a legend in econoadcs which says that economists should postpone until the twilight years of their active careers any efforts to deal comprehensively with the methodology of economics 9 The sub­ ject, so it is claimed, requires a long process of development with the discipline before the fruits of experience, of mature, reflective thought can be brought to bear on the demanding nature of the subject. Of course, some have started at early stages, witness Schumpeter’s first major work, but in general the study of methodology seems to take a strong ego, an impatience and deep concern with the accom­ plishments of a chosen field, or ignorance and naivete upon which age and experience have as yet left little of their stamp. Although the force of each partially explains the selection of the topic, only the reader can judge which force should be weighted more heavily. That this study has been"brought to a conclusion is the consequence of the encouragement and assistance of many persons. Several most, however, be singled out for special acknowledgment, Te Professor Clifford L* James, who encouraged me in this topic and closely followed its development, I offer ay warmest gratitude and deepest appreciation. Professors Robert D„ Patton and Alva M» Tuttle offered important assistance with concepts and form and made invaluable suggestions to improve the quality of the writing for which I am vezy grateful, Yet, I would not wish others to associate them with any errors that might be found in this study. This is the responsibility of the author, and, if the intellectual progeny should ii have strayed too far, that, too, would be a singular responsibility. Finally, to w wife who did far more than merely type copy, who experienced the distress of a dissertation in so many ways, I fondly dedicate this study* May 20, 1959 Charles S* Helppie ill CONTENTS CHAPTER I INTRODUCTION 1 A* Recognition of methodology 2 B. The basic issue of methodology 5 C« Status of the issue 6 D. Direction of study 12 E® Summary and Conclusions 12 CHAPTER ZI GENERAL ELEMENTS OF METHODOLOGICAL PERSPECTIVE 15 A* Dimensions of methodology 15 B* Bread issue of definition 16 C. Definition and meaning of methodology 17 D® Functions of methodology 19 So Approach or framework of methodology 23 1* The issue of the "best" approach or framework 25 2® Differences in approaches or frameworks 27 F® Methodological standards and tests 31 G. Attitudes and preconceptions > 33 1* Pure or discipline methodology 34 2® Sterile versus constructive methodology 3® H* A concept for methodology t methodological matrices 39 I* Summary and Conclusions 44 CHAPTER HI METHODOLOGICAL PERSPECTIVE* NCN-EOONCMIC 46 A® Scientific Weltanschauung and metaphysics 49 B® Methodological standards and rules 53 C« Added insights into methodology 61 1„ General theory or dualism 61 2* Mechanical models 63 3* Continuant versus occurrent conditions 65 4® Meaningless questions 66 D® Comparison of sciences 68 E® Social science methodology and a formal analysis 70 F® Summary and Conclusions 76 CHAPTER IV METHODOLOGICAL PERSPECTIVES ECONOMICS 81 A® The attempt at compromise and synthesis 83 B® Emphasis on a logical system of economics 89 C. The stress of empiricism 94 D® Methodological Issues in policy orientation 99 E® The role of theory and facts 99 F. Prediction in economics 109 G® Summary and Conclusions 114 CHAPTER V THEGKT IN MONOPOLOID MARKET ANALYSIS 118 A® Abstraction in theory 118 1® Scope or magnitude of theory 120 2® Illustrative variations in scope 122 B, Theoretical concepts or models 125 iv CONTENTS 1* Equilibrium models 127 2» Power and bargaining models 133 3» Organic medals 135 4* Open-ended models 136 C. Theoretical topics and problems 139 D* Theoretical hypotheses and conclusions 142 E« Summary and Conclusions 143 CHAPTER TO EMPIRICAL WORK IN MONQPOLOID MARKET ANALYSIS 147 A. Empirical suspicions 14? B. Facts 151 C« Contr adlctory theses and methodological problems 152 1« Economic concentration 1.56 2. Merger movement and business cycles 159 3# "Turnover" of giant firms 160 4, Monopoly and misalleeatlon of resources 161 5« Rigid prices 163 6. Costs 166 7* Entry 167 D. Institutional approach 173 E« Summary and Conclusions 178 CHAPTER VII PUBLIC POLICY IN MCKOPOLOID MARKET ANALYSIS 181 A« Contradictions in public policy 181 B* A public policy perspective 183 C. General approaches to public policy 186 D. Pole of state action 191 E. Size and certainty in policy 193 F. Paradoxes of policy 195 G. Political environment and personal elements 200 H. Summary and Conclusions ' 203 CHAPTER V H I SUMMARY AND CONCLUSIONS 207 BIBLIOGRAPHY 217 Chapter 1 Introduction Economists have expressed dissatisfaction with the quality ef the scientific performance of their discipline when asked to evaluate the theoretical and empirical findings it produces* This has been espe­ cially true in the analysis of monopolold markets where there is little room for sanguiness with the performance of economies when it is criticized fort (a) faulty theoretical formulations, (b) insuf­ ficient, conflicting, and inadequate evidence, and (e) absence of standards for evaluating this type of phenomena*^ In light of such criticism several conventional improvements and corrections are often advised* Concentration on the theoretical deficiency with a careful application of logical analysis to eliminate redundant and misleading propositions and unrealistic assumptions is mentioned* Also, the suggestion is advanced that extensive and elaborate empirical investigations would eliminate the inadequacies resulting from the paucity, or imperfections, of the data* Finally* there is the expectation that group meetings and interdisciplinary teams will provide the insights and programs for the construction of an adequate system of standards for policy* However, there may be an important reason for doubting the capacities of the conventional suggestions* Much of the effort 1 Corwin D* Edwards, "Issues in the Monopoly Problem", in teaagte 2S* £5* Their Regulation, edited by Edward H* Chamberlin, London: MacMillan and Company, Ltd*, 195^* PP» 188-200* *1# -2- expended along the conventional lines will be dissipated if the basic problems plaguing analysis are deeply imbedded in the corpus of economic science, i,e., if the problems are fundamentally method©- logical. Under these circumstances a different orientation would be necessary, one that would probe the foundations of analysis. Recognition of Methodology In the theory of monopoloid markets the influence of methodology has been duly recognized. Support has been given to the argument that a methodological reorientation is essential if such markets are to be analyzed successfully. Professor Triffin has made the point explicitly* “Something might he gained if we could approach the problem from a new angle and escape from the particular tradition and methodology within which the discussion has proceeded so far". Thus, on methodological grounds certain of the orthodox theoretical concepts are severely criticized.^ While explicit reference to methodology may be absent in theor­ etical works, the theorist alludes to issues of methodology. In his Theory ef Monopolistic Competition* Professor Chamberlin refers to a problem of methodological importance. This association of the theory of competition with facts which it does net fit has not only led to false conclusions about the facts; it has obscured the theory as well0 This 2Robert Triffin. Monopolistic Competition and Geperal Eguilibrium Theory. Cambridge) Harvard University Press, 19^0, p. 3, 3”ln the general theory of value, the group and industry are useless concepts. The new wine of monopolistic conpetltion should not be poured into the old goatskins of particular equilibrium methodology,” Ibid.. p. 89, -3- is the more serious because the mixture of the two is a chemical process and not merely a matter of addition. Slight elements of monopoly have a may of playing unexpected logical tricks* with results quite out of proportion to their seeming importance.** Similarly* Mrs* Robinson*s distinction between theory* practice* and evidence reflects a significant methodological position*^ The presence of methodology on the theoretical side of analysis Edward H. Chamberlin, Ifee Theory Monopolistic fifflESSiSifla* Fifth Edition* Cambridge: Harvard University Press* 19w , p0 3 * Another point of methodological interest appears in a comparison of his analysis with that of Joan Robinson: "It has been unfortunate that two theories as divergent in their interpretation of economic phenomena as Mrs. Robinson's and ny own should have become identified in the minds of so many* even to the point of regarding them as differing only im terminology.•••Gradually it dawned that the explanation lay in a difference* not merely of words* but of funda­ mental conception as to how the phenomena in question were to be explained." Ibid.. pp. vii-viii* 5 "The purpose of this book has been to provide a box of tools for the analytical economist* The area within which these tools can work is very narrowly bounded* A number of unsolved problems lie behind and before the problems with which they are adapted to deal* Behind lie the fundamental problems on whose solution depends the validity of the whole supply-and-demand-curve analysis* To these general questions the tools* in the nature of the case* can have no contribution to make* But even within their own sphere the tools can do no work unless they are given some material to work on* The imaginary examples of the shapes and movements of demand curves and cost curves* constructed in order to display the apparatus* serve to show the kind of results that the tools could produce if they were given some realistic material on which to exercise their ingenuity**** The level of abstraction maintained in this book is distressingly high.