New Aspects of Price and Production Theory. Despite recent progress, price and production theory is still inadequate, because it is not applicable to the management of business enterprises and it cannot be used in macro-economic models. What is needed is not the refinement of a few special points in the theory, which suffers from the defect of narrowness, but rather an effort to extend its scope, particularly in the following respects:
(a) Investigation of such relations as may exist between markets or between industries;
(b) Specification of the production functions;
(c) The working-out of a theory of organisations, which would make it possible to grasp and express, in simple terms, the differences that are to be expected in the behaviour of a co-operative society and a share company, a trust and a cartel a free and a dependent enterprise, etc.;
(d) Investigation of cases falling somewhere between a duopoly and a polypoly— the only forms which really exist—detailed treatment being given to the possible reactions of enterprisers (price changes, advertisements, participations etc.), and the result being systematised on the basis of a new logical principle, which, to all appearance, can only be the one underlying the theory of games.
It looks as if we are now upon the brink of such an extension of the theory. This would constitute the second “revolution” of the price and production theory. The book Business Concentration and Price Policy reviews the stage now reached by research with regard to a large number of important points, such as:
- the concept of industry,
- investigation of yields,
- the extent of concentration and degree of integration of business firms,
- the incidence of taxes,
- the tactics of imperfect competition,
- the relations between markets.
Although it suffers from want of systematic arrangement, the book nevertheless supplies a great many data necessary for the elaboration of a general theory.