Schumpeter's price theory

Schumpeter distinguishes between the circular flow of economic activity and economic development. The former is characterised by equilibrium, while the latter involves discontinuous change. The price theory that Schumpeter associates with the circular flow is the well established Walrasian price system. However, the price theory which Schumpeter proposes for economic development is only partially developed in writings and has been largely ignored since. Yet, it is the analysis of economic development that constitutes Schumpeter's enduring contribution to economic thought. This paper provides a critical examination of Schumpeter's price theory as it applies when there is economic development

Penrose and Steindl: Foundations for a general theory of firms and competition

Edith Penrose and Josef Steindl each developed a distinctive analysis of the growth of firms. They undertook to understand the process that was leading to increasing dominance of industry, particularly manufacturing industry, by a small number of large firms. In the present paper, we examine the work of these two authors to detect similarities and differences in the way they deal with the determinants of firm growth and the implications of such growth for the competitive struggle amongst firms.Our particular focus is on the divergent conceptualisations of the notion of capacity between Penrose and Steindl, referring to the quantity and quality of productive services from management with experience within the firm in the case of Penrose and to the quantity and quality of physical assets (particularly machinery) in the case of Steindl. We examine the internal logic of each conceptualisation, as well comparing motivations and implications. Our appraisal is that they both provide coherent, but partial, explanations of the forces driving firm growth. We trace the difference in their explanations to different empirical bases motivating each author?s analytical schema. This leads us to suggest an encompassing explanation that focuses on overcoming any of a variety of bottlenecks, including managerial capability, productive capacity and market development, which can impede a firm?s ability to grow

Technological change in Australian manufacturing

In the modern era, the extent and character of technical change features prominently in discussions of productivity growth and movements in the competitiveness of manufacturing. While technical change is pervasive in modern manufacturing, it occurs unevenly. In this study, technical change is estimated by fitting dual cost functions for each of 38 sectors of Australian manufacturing over the 32-year period, 1968/69 to 1999/2000. The estimates show that technical change is heavily labour saving in all industries, but that the rate of change and the degree of bias towards saving labour, rather than capital or material, varies substantially across industries

Prices in Motion: Schumpeter’s Contribution to Price Theory

Schumpeter distinguishes between the circular flow of economic activity and economic development. The former is characterised by equilibrium, while the latter involves discontinuous change that induces business cycles. Schumpeter argues that with development prices are generally in motion. Schumpeter’s theory of the business cycle has been heavily criticised. Specific criticisms relating to his price theory include its characterisation of prices stabilising near the Walrasian competitive equilibrium for a stationary economy and its prediction of a downward trend in prices over the longest cycles. This paper reviews Schumpeter’s theory and the critiques before suggesting a way forward to a revised theory of prices in motion

Schumpeter's contribution to price theory

Schumpeter distinguishes between the circular flow of economic activity and economic development. The former is characterised by equilibrium, while the latter involves discontinuous change. The price theory that Schumpeter associates with the circular flow is the well established Walrasian price system. However, the price theory which Schumpeter proposes for economic development is only partially developed in writings and has been largely ignored since. Yet, it is the analysis of economic development that constitutes Schumpeter's enduring contribution to economic thought. This paper provides a critical examination of Schumpeter's price theory as it applies when there is economic development and provides some suggestions for further development of the theory

Steindl's analysis of firm growth and the tendency toward industry concentration

A recurring theme in Steindl's analysis of firm growth is the tendency toward industry concentration. His earliest writings examine the influence of risk on firm growth (Steindl (1941, (1945a) and (1945b)). He then turns his attention to the influence of technical progress ( Steindl (1976), and, finally, to the influence of random processes (Steindl (1965)). In each of these analyses there emerges a tendency toward the concentration of industry.Steindl takes the concentration of industry to be an established fact of mature capitalism and sees his analysis as providing an explanation for this fact. The same analysis provides the basis for the behavior patterns attributed to oligopolistic firms. He then examines the implications of the oligopolistic pricing and investment behavior for macroeconomic performance (Steindl (1976), (1979) and (1989)). The analysis of firm growth thus provides the foundation for Steindl's understanding of mature capitalism. The present essay examines Steindl's analysis of firm growth and evaluates his explanation of industry concentration

Firms and industries in evolutionary economics: Lessons from Marshall, Young, Steindl and Penrose

Evolutionary economists have tended to assess firms and industries separately, neglecting the role of their interaction in the process of economic growth and development. We trace the separation of firms and industries to Marshall, whose industrial analysis by means of the representative firm formalizes population thinking as ?thin? means of relating firms and industries. Penrose avoids the industry concept by focussing on heterogeneous firms, while Young and Steindl develop mundane explanations of firms? relations within groups, locating the impetus for growth in a poorly understood environment. We conclude that evolutionary economics should revisit firms? boundaries, not in the sense of explaining the existence of firms, but in a relating and communicating sense in which boundaries signify selective means of relations with others

The Effects of Export, Technical change and Markup on Total Factor Productivity Growth: Evidence from Singapore's Electronics Industry

This paper illustrates a new technique to measure the effect of export demand on the conventional TFP growth index at the industry level. We apply the technique to Singapore’s electronics industry and find that rapid growth in exports accounts for most of the TFP growth in this industry.TFP growth, exports, Singapore's electronics industry

Labour Productivity, Import Competition and Market Structure in Australian Manufacturing

Through altering competitive conditions, globalisation can have a significant impact on productivity of the domestic economy. Foreign competition can stimulate the productivity improvements by domestic firms or it can lead to the elimination of inefficient producers. Alternatively, the threat or reality of foreign competition can impede investment in new equipment and techniques, thereby slowing the adaptation of productivity improvements. Thus, the impact of globalisation on productivity growth needs to be explored empirically. In this paper, we estimate the impact of import competition on labour productivity growth in Australian manufacturing using a panel data analysis for a three-decade period. The estimates extend and complement earlier work by Bloch and McDonald (2001), which applies panel data analysis to a sample of Australian manufacturing firms for a one-decade period. The use of industry level data in place of firm-level data, allows us to include the effects of entry or exit of firms, while the longer time period allows determine whether the impact of import competition on productivity growth changes to following micro-economic reform in the Australian economy. As with Bloch and McDonald, we also examine whether the impact of import competition varies across industries with domestic market structure. Reference: Bloch, H and J T McDonald (2001), Import Competition and Labour Productivity, Journal of Industry, Competition and Trade, 1(3), 301-319.productivity growth, Australian manufacturing

Australian telephone network subscription and calling demands: evidence from a stated-preference experiment

This paper examines the impact of the subscription-calling rate structure on the demand for residential telephone network subscription and calling. Stated-preference experimental data are used to estimate demand equations. The results indicate that household network subscription and calling demands for the Sydney Metropolitan Area are affected by both rate structure and household socio-demographic variables.Telecommunications demand; Subscription-calling rate structure; Stated-preference experimental analysis; Survey