Tuna Baskoy
Business competition, which refers to a particular type of relationship between business enterprises, is at the heart of the capitalist market economy. At first glance, it may seem a simple and straightforward concept. It is, however, a complex phenomenon with systemic reverberations. As Malcolm Sawyer (1989: 141) notes, various theoretical approaches to competition have a significant impact on the analysis of market dynamics and outcomes, and hence, the desirability of capitalism as an economic system. The pivotal factor for understanding the origins of differences between the major theoretical approaches is the notion of market power, which can be defined as the ability of business enterprises to control their environment to some extent in their own interests (Monvoisin & Rochon 2006: 21–22).
Mainstream theories of perfect competition and contestable markets prefer private market governance in the absence of market power. The theory of perfect competition offers a static understanding of competition by emphasizing the stylized structural properties of the market such as identical products, perfect knowledge, many producers and sellers, and free entry and exit (Nicholson 1997: 218). Likewise, the theory of contestable markets acknowledges market power by relaxing the assumption of the requisite number of business enterprises for competition to be effective in allocating resources. Yet, as long as market entry and exit are absolutely free and costless, the market power of oligopolies and monopolies is ephemeral and temporary (Baumol 1982: 3). In any case, market power that is portrayed as a property belonging to an individual business enterprise either does not exist in the theory of perfect competition at all or is temporary in the theory of contestable markets at best. Market governance is ensured through the independent practices of individual business enterprises alone (Williamson 2005: 1–18).
The following question is still unanswered: How can one explain the evolution of markets over time, which bears on the persistence of market power and market governance? It is argued in this chapter that while various heterodox economic theories—in particular, Austrian, Marxian, and Post Keynesian—conceptualize competition as a dynamic and historical process where power is influential in shaping market outcomes, the Post Keynesian approach captures the issue of governance in a more effective and realistic manner than the Austrian and Marxian views. The strength of the Post Keynesian approach is derived from its emphasis on the positive role of the state in taming market power to stabilize otherwise unstable capitalist markets as part of prosocial policy. The following sections are structured as follows. The second section examines the key concepts as market and market governance. The third section assesses the Austrian approach to competition and market governance, which is followed by Marxian theory in the fourth section. The fifth section evaluates the Post Keynesian approach. The final section discusses and recapitulates the key findings.
Without a clear definition of the market, a standard macroeconomics textbook goes directly to an analysis of goods or financial markets (see, for example, Blanchard & Melino 1999). This is possibly because the primary focus of orthodox (mainstream) microeconomics is the market. However this does not mean that there is a clear and universal definition of the market. Mainstream economists take location or place as a reference point to delineate markets (Lyons 2004: 21; Arnold 2008: 54). For heterodox economists, the market means more than a place. “In its more general and abstract usage, market refers to a set of sellers and buyers whose activities affect the price at which a particular commodity is sold” (Baumol et al. 2009: 209, original italics). Players and the outcomes of their actions in terms of the price for a particular commodity are the two crucial factors in defining this concept. Similarly, Thorstein Veblen (1923: 392) emphasizes “the volume of effective demand” and commodity prices thereby underlining the activities of buyers and sellers and their impact on price. Lee (2010: 31), on the other hand, takes all the transactions of a specific product as the basis for defining the market. Acknowledging these viewpoints, this chapter adopts Fernandez-Huerga’s (2013: 366–371) market definition which can be articulated as a special type of social structure interwoven by and with a series of informal and formal institutions that structure and facilitate the exchange of things for money to satisfy demand. Formal and informal institutions draw the boundaries where exchange takes place and at the same time these institutions shape the role played by business enterprises, consumers, the state, and non-state actors in market governance.
In a similar vein, governance derives ultimately from the Greek verb kubernáo, meaning to steer (Peters 2012: 7). ‘Steering’ suggests that governance is as much about manner or way as it is about process. Yet, mainstream economists offer a structuralist perception of governance as “the institutional framework in which contracts are initiated, negotiated, monitored, adapted, enforced, and terminated” (Palay 1984: 265). In reality, the institutional framework is not considered and the chief concern is the role of private contracts and other similar arrangements in facilitating exchange between business enterprises (Van Hoi et al. 2009: 381).
From the Post Keynesian perspective, Baskoy (2012: 387) defines governance as “the process of crafting and implementing laws and regulations to reduce instability and decrease uncertainty in the market.” Jo (2013: 456) distinguishes between market governance and market regulation, arguing that whereas the business enterprise manages market governance, the state is responsible for regulating the market. Lee (2013a: 476), however, includes the state, business enterprises, and non-state organizations in his view of market governance. Common to these definitions is the notion that market governance is a process as well as a way of steering markets in defining the relations of competition, cooperation, and market-specific definitions (Fligstein 1996: 658). This notion may appear in formal laws and regulations as well as in informal rules, norms, and practices. Just as formal and informal structures, rules and institutions for coordinating collective activity are part and parcel of governance, so too are public, private, and non-state organizations, and all decisions related to the market (Boscheck 2008: 8). With these concepts of market and governance in mind, let us turn to different heterodox approaches to see how each analyzes business competition and market governance.
Unlike the neoclassical conception of competition, which emphasizes the number of players and price as two crucial factors, scholars of the Austrian economics tradition portray business competition “as a dynamic and faltering human process of rivalry and bargaining” (Endres 1997: 145). It is a dynamic process of discovery in time, not as a state of static timeless equilibrium (O’Driscoll & Rizzo 2015: 139). For Carl Menger, competition is bound with the behavior of business enterprises (Mantzavinos 1999: 685–686). By taking a subjectivist and individualist starting point, Friedrich Hayek (1978: 179) describes competition as much a conflict over price as over non-price elements. Both producers and buyers learn the best available production techniques, products, prices, etc. through the process of competition (Hayek 1948: 95–96).
In contrast to Menger and Hayek, Joseph Schumpeter is more objectivist and combines individualism with holism (Arena 2015: 77–90; Janberg 2015: 91–105). At the same time, Schum-peter maintains that competition is best understood as a process and variables such as a new type of business organization, a new type of commodity, new production techniques and technologies, and a new source of supply are the major sources of power in the process of competition. Business enterprises compete with one another not only for profit margins but for challenging the very foundations and lives of their competitors (Schumpeter 1950: 84). Expressed differently, competition is a “perennial gale of creative destruction” (Littlechild 1978: 33). New commodities, new technologies, and new types of organization, among others, are the strengths of business enterprises in the process of competition. In short, competition is a historical process with evolutionary dynamics (Metcalfe 2013: 124).
In the Austrian tradition, market power stems from new technology, new products, new organization, new sources of raw materials, new markets, the size of business enterprises, and their collective action in the forms of cartels, and the like. In particular, size is a major strength in that bigness induces business enterprises to discover and exploit opportunities to reduce costs and introduce new products with adequate resources (Littlechild 1978: 37). The Austrian school jettisons the idea of a positive relationship between the number of competitors and the intensity of competition—that is, healthy competition does not necessarily require many players. Besides, oligopolies and cartels are seen as “an important means of securing profit opportunities by facilitating planning and reducing the risks of business enterprise in a world of uncertainty” (Endres 1997: 132). Market power is essential for individual business enterprises to control and stabilize otherwise turbulent and unstable markets where the constant pressure of competition is assumed and the behavior of business enterprises remains the center of attention.
There is also an emphasis on private market governance in the Austrian tradition, like its neoclassical counterparts, in that the effectiveness of competition is the key to preventing inefficiency more quickly than public policy. Entrepreneurs have much more expertise in identifying inefficiencies in the market than economists, judges or legislators in the presence of free market entry (Kirzner 1985: 142). Moreover, entrepreneurs bear financial responsibility for their decisions, not the regulators (High 1984: 31). Abolishing restrictions imposed by the state is presented as one of the best ways to increase competition. There is heavy reliance on private market actors in market governance instead of the state ensuring the public good.
In sum, the theoretical innovation of the Austrian tradition is twofold: first, the portrayal of competition as a dynamic and evolutionary process; and, second, the shift in the unit of analysis specifically to entrepreneurs and their behavior with a strong emphasis on the significance of non-price forms of competition (Endres 1997: 5). The Austrian school points to the existence and necessity of market power, its various sources, and the role of technology in business competition. Nonetheless, it falls short of explaining the persistence of market power for governance, the role of the financial sector, or the changing organizational forms of business enterprises. The state’s role is limited also to keeping markets open with a number of softening caveats like efficiency, which, in turn, makes the state literally unnecessary and hence under-theorized.
What distinguishes the Marxian perspective from the Austrian view is its insistence on the permanent and augmenting nature of market power because of the perception of the business enterprise as a self-expanding value and its impact on the state’s involvement in market governance in addition to its emphasis on the cyclical evolution of competition and market concentration (Shapiro 1976). Essentially, business competition is ‘striving’ between economic units; it is a process through which production, realization, and distribution of surplus value is carried out (Marx 1973: 751). Competition is not peaceful, but warlike—the coercive “action of capital upon capital” (Marx 1968: 30). Strictly speaking, competition between capital coerces individual business enterprises to develop new products, new technologies, new production processes, or to find new geographic markets and new ways of managing relations with their competitors and the state (Marx 1967: 316).
Marx considers interactions not only between business enterprises of different sizes, but also between different sectors (finance, industry, and agriculture) and between business enterprises and the state (Marx 1976: 534–535). In analyzing the relationship between financial and industrial sectors, joint stock companies serve as a bridge and Marx draws three conclusions concerning business competition. First, the joint stock company, as a new form of production organization, makes it possible to produce commodities on large scales and at a lower cost. Second, the joint stock company’s shares are owned by many, which brings about the socialization of capital. Finally, managers, not shareholders, run day-to-day operations of the joint stock company, which results in the separation of ownership from management with the following reverberations:
[I]t produces a new financial aristocracy, a new kind of parasite in the guise of company promoters, speculators and merely nominal directors; an entire system of swindling and cheating with respect to the promotion of companies, issue of shares and share dealings. It is private production unchecked by private ownership.
Marx 1976: 569
The emergence of the joint stock company changes the mode of business competition markedly, as powerful competitors vigorously compete for market share to benefit from economies of scale.
For Marx, competition is cyclical and its intensity changes over the business cycle with fluctuations in profitability. Basically, an increase in competition for market share triggers a temporary rise in wages and, thus, a sharper decline in the rate of profit (Marx 1976: 565). Competition also fosters the creation of new technology and introduction of new machinery by business enterprises to reduce production costs (Marx 1973: 776). Every new production technique makes commodities cheaper initially. Those capitalists who apply new techniques first earn more profit. Nonetheless, competition equalizes profit rates in relative terms by universalizing new production techniques within an industry through accelerating the speed of the diffusion of technology (Marx 1973: 373). Business enterprises also tend to expand geographically, and consequently intensify competition within as well as between countries (Marx 1952: 39, 1976: 1014).
Production in large quantities by many business enterprises leads to a market glut and, thus, a problem of profit realization via sales, even after geographic market expansion. A price hike in inputs and a sharp decline in commodity prices reduces profit margins drastically, which does not immediately impact on the reckless expansion in industrial investment and productive capacity because of speculations and ‘dirty’ tricks—that is, inflating profits while hiding losses in order to attract more capital (Marx 1976: 567). The credit system serves as a basis for speculative activities in the market with its ability to enable the acts of buying and selling to be spread out over time (Marx 1976: 567). When it becomes clear to the financial sector that ‘promised’ profits cannot be realized, it stops lending abruptly to the industrial sector that is now in urgent need, thereby accelerating bankruptcies, acquisitions, hostile takeovers, mergers, and hence market concentration which may not be as unilinear as it may sound (Marx 1952: 44, 1976: 331–332, 572).
Marxian scholars emphasize a shift from price to non-price competition with the concentration and centralization of capital. For instance, Rudolf Hilferding (1981: 189–193) points to the existence of major obstacles for the downward movement of prices. Cartels, restrictive practices, combinations, fusions, amalgamations, advertising, and other selling efforts are a few market practices that business enterprises deploy to prevent declining profits, however transient they may be. Similarly, Vladimir Lenin (1963: 40) maintains that market concentration does not mean the disappearance of competition altogether, but the emergence of something new, which is “a mixture of free competition and monopoly.” Lenin also maintains that restrictive practices and cartels become the foremost tactics in competition. Some of these practices are the cessation of raw material supplies and labor, cutting off deliveries, the closing of trade outlets, cartel agreements, price cuts, the stopping of credit, and boycotts both at national and, especially, international levels (Lenin 1963: 26). In short, the joint stock company means that competition acquires a new face.
Marx clarifies how the power of business enterprises influences public policies and, therefore, state-economy relations. In The Communist Manifesto, Marx and Engels (Marx 1994: 161) reveal their vision of the modern state: “The executive of the modern State is but a committee for managing the common affairs of the whole bourgeoisie.” The bourgeoisie, which owns the means of production, establishes itself in the modern representative state. Certainly, public power is nothing but “merely the organized power of one class for oppressing another” (Marx 1994: 176). In The German Ideology, Marx (1994: 154) contends that the state is principally an institutional form within which a double process of integration of the entire civil society and an assertion of the common interests of individual capitalists takes place. In one way or another, the state serves the interests of the dominant class with its active involvement in market governance.
To sum up, the Marxian view theorizes competition as a dynamic and evolutionary process between business enterprises. Essential in this process is the role of joint stock companies and their relations with the financial sector and the state in the context of market governance. Accruing from size, new technology, new commodities, new organizational structures, and relations with competitors and the state, market power is a factor that shapes the governance of markets by affecting the process of competition directly as well as affecting political decisions. Attributing to the state an active economic role broadens the concept of market governance. Nevertheless, representing the state as an institution that serves the interests of the capitalists directly or indirectly is problematic in that it eliminates the possibility of the state being autonomous in making and implementing policies that may be against the interests of the capitalist class from time to time.
Post Keynesian economics shares some of the core assumptions of heterodox economics including realism, organicism, reasonable rationality, production, disequilibria, and instability. Its distinct features are the principle of effective demand, investment as the driving force behind saving, the monetary theory of production, historical and irreversible time, fundamental uncertainty, antireductionist microfoundations, and the importance of institutions and power relations (Lavoie 2014: 33–34). For Post Keynesians, the economic system proceeds along a long-term secular growth path with short-term cyclical movements (Langlois 1993: 87). Economic processes take place in real time and contractual relations are required to reduce fundamental uncertainty and an unpredictable future in a monetary or capitalist economy. Contracts for the payment of money are written in calendar time. Historical time means that decisions are irreversible—that is, once a decision is made and put into practice it is hard to reverse without incurring any significant cost (Henry 2012: 530). Market power is a major means in the hands of business enterprises to reduce, if not fully eliminate, uncertainty in and outside the market (Monvoisin & Rochon 2006: 21–22).
The modern big corporation is a typical market player in Post Keynesian economics. Alfred Eichner (1985: 30–31) calls it a ‘megacorp,’ which operates several plants in each of the industries to which it belongs and usually opens up or shuts down plant segments over the business cycle. Following the institutionalist view of the business enterprise, Lee (2013b: 166), and Jo & Henry (2015: 28–29) label the business enterprise a ‘going concern,’ which has an indefinite life span and engages in continuous economic activity with its two organizational parts of ‘going plant’ (productive capabilities) and ‘going business’ (managerial capabilities). The primary objective of the business enterprise is to survive competition, which is only possible with a profitable business (Lee 2002: 122). Despite significant differences in their ability to maintain price when demand varies, business enterprises strive for market power to have control over pricing decisions (Minsky 1986: 157).
Technical progress, which is endogenous to “the normal functioning of the capitalist system,” requires more capital and thereby encourages industry concentration (Kalecki 1941:179, 1962: 147). It is not unusual to see a few big business enterprises with price-setting ability surrounded by a multitude of small enterprises offering slightly different products and adjusting their cost margins to stay competitive (Lavoie 2001: 22). Capital-intensive industries are more concentrated to fulfill the wishes of both investors and bankers who look for some guarantee that price competition will not happen, especially in manufacturing and utility industries (Minsky 1986: 167). Thus, oligopolistic markets make up a significant portion of economic structures in industrialized countries (Eichner 1976). As a corollary of this, cost-plus pricing, which may appear in different forms, is the common business enterprise practice to ensure its survival among other objectives (Lee 1998).
With an emphasis on a specific type of market form, it may be wrong to infer that Post Keynesians advocate a structuralist approach to business competition. On the contrary, Post Keynesian economics is “rooted in a dynamic process” and concerned with “the analysis of the economy in disequilibrium” (Eichner & Kregel 1975: 1294–1296). Competition is not perceived as an end-state; rather it is a dynamic process that takes place through investment and capital accumulation in a capitalist market economy (Kenyon 1979: 40). Whereas the overall state of the economy determines the totality of cash flows, competition distributes them among business enterprises (Minsky 1986: 142–143).
Business enterprises compete with each other on the basis of price and non-price elements to remain profitable (Sawyer 1994: 10). Having more or less similar cost structures and size, the bigger ones do not often use their power to compete on the basis of price as a way of avoiding its destructive and inconclusive outcomes (Lee 1998). Instead, price leadership develops in such markets (Shapiro & Mott 1995: 43). There is more of a role for non-price competition such as research and development, investment, discretionary expenditures and product differentiation, than price competition (Eichner & Kregel 1975: 5; Eichner 1983: 138–148). Price competition is not ruled out completely. It is acknowledged, but can be very rare and yet bloody, whenever it happens (Lavoie 2001: 27).
In line with Lavoie’s description of the oligopolistic market and Kalecki’s view on the impact of innovations on competition, Joseph Steindl (1987: 11) argues that there is no one type of business enterprise that plays a leading role and disrupting the order in industry. Accordingly, Steindl makes an analytical distinction between the ‘defensive (weaker) or aggressive (stronger)’ and ‘con-servative or innovative’ business enterprise. Facing intense competition, even medium or fairly big business enterprises may be reduced to the level of normal profits, whenever their innovative competitors achieve sufficiently large cost differentials. In other words, normal profits are not necessarily the sole characteristic of small business enterprises. Big business enterprises can be marginalized in an industry as well as in the face of strong competitive pressure. The only difference to be noted is the duration that it takes. A longer time is required for progressive business enterprises to exert serious pressure on their bigger ‘marginal’ counterparts (Steindl 1952: 53).
With respect to the anatomy and internal dynamics of competition, Post Keynesians identify stagnation, upturn, downturn, and crisis as four phases of a typical business cycle (Alves et al. 2008: 413). Intensity of competition depends on demand and hence profit opportunities, and fluctuates over a full business cycle. Stagnation is a stage during which competition is subdued with low demand, which triggers reduced supply in the market. Demand picks up gradually at the beginning of an upturn. Instead of having a uniform price, business enterprises develop a price structure that corresponds to the different qualities and types of the product (Steindl 1952: 40). Progressive business enterprises have greater gross profit margins, and therefore higher net profit margins compared to their marginal counterparts thanks to cost-reducing technical innovations. They adopt new technical methods to decrease their costs and improve their profit margins, which may not be the case for smaller competitors. If progressive business enterprises expand faster than the growth of the industry, the absolute market share of other business enterprises necessarily declines, thereby facilitating absolute concentration in the concerned industry, especially after a few competitors are eliminated from the market (Steindl 1952: 42).
There is a financial dimension to competition as well. According to Hyman Minsky (1986: 178): “[d]uring periods of tranquil expansion, profit-seeking financial institutions invent and reinvent ‘new’ forms of money, substitutes for money in portfolios, and financing techniques for various types of activity: financial innovation is a characteristic of our economy in good times.” In other words, banks are willing to help industrialists to expand when they see profit opportunities in times of growing demand which itself fuels economic growth. They create new credit opportunities for investors as a way of boosting their own profitability.
Business enterprises use their market power to raise their mark-up during business upswings (Atesoglu 1997: 646). Occasionally, prices may increase with excess demand especially when small innovative business enterprises have difficulty in adding new productive capacity to offer new products during business upswings. In such markets, business enterprises raise their prices to deal with their inability to meet the immediate excess demand, which may not last very long. High profit margins attract new competitors, obviously. When the growth in demand for industry products becomes stable, business enterprises correct the deviation of actual price from its long-run level by reducing their mark-ups in the next period (Sen & Vaidya 1995: 42). In explaining when business enterprises cut or raise prices, Nai-Pew Ong (1981: 103–105) emphasizes the existence of defensive as well as offensive pricing in a stratified industry during upturns and downturns. Whereas the objective of defensive pricing is to protect market share by blocking the expansion of the marginal business enterprises progressively, offensive target pricing aims at eliminating the marginal business enterprises by bankrupting and driving them out of the market.
An increase in the industry’s profit margin leads to an increasing rate of internal accumulation, a driving force behind further investment and increasing output. If the growth rate of output is greater than the expansion of the industry’s growth rate in terms of demand, competition between business enterprises becomes intense (Steindl 1952: 45). Progressive business enterprises step up their selling efforts, which results in an actual loss of sales on the part of their peers. In response to this strategy, other business enterprises either cut their prices or increase costs by quality competition or product differentiation and more extensive advertisement (Steindl 1952: 43). The latter is the most-widely used practice, which appears as product differentiation and selling efforts to segment the market.
Knowing that competition is harmful and that markets are unstable, competitors form cartels, trusts, and alliances in order to mitigate the effects of price competition during the downturns, in addition to mergers, acquisitions, and takeovers. Nonetheless, such agreements are often violated after competitors reduce their mark-up to increase market share. Moreover, the existence of a strong belief that the agreement will soon be violated in such an uncertain environment anyway is itself another factor behind the fact that cartels are not stable. Another tactic that small business enterprises particularly deploy is adulterating their products and using ‘dirty tricks’ to sabotage their competitors’ business (Eichner 1969: 14, 58).
The financial sector has a role to play in this process as well: “Strong and unregulated competition in the markets of products produced by capital-intensive processes is incompatible with the uncertainty attenuation required by financiers and bankers before they hazard substantial funds in the financing of such processes” (Minsky 1986: 170). Immediate reaction from the financial sector is to restrict the flow of funds into the industry, which, in turn, amplifies the financial difficulties of the business enterprises that expanded quickly during the upturn. Technologically innovative as well as high-cost competitors with difficulties in borrowing from the financial sector might disappear through bankruptcies, mergers, and acquisitions, thereby escalating market concentration. In turn, the average profit margin in the industry rises again in proportion to costs. Whenever this increase is above a certain level that leads to more internal accumulation in the industry, business enterprises can use the surplus for the purpose of expansion of the industry as a whole. Then a new competitive struggle sets in again, but under the leadership of few bigger competitors this time (Steindl 1952: 43). The state plays a role in market governance through regulatory commissions and policies such as antitrust/competition law to regulate business competition (Lee 2013a: 476, 2013b).
It is obvious that market power is a comprehensive concept in Post Keynesian economics. Certainly, the size of the business enterprise is important, but it is not the only source, as in the neoclassical theories of perfect competition and contestable markets. Innovations, new products, product differentiation, technology, organization, sales efforts, relations with other business enterprises as well as state regulations can be the sources of market power. In a way, having more information than others, whether it is information about technology, organization, competitors, or the state, is the quintessential source of power. Similar to the Austrian view, market power can reduce uncertainty by enabling business enterprises to control their environment, but does not eliminate it fully (Monvoisin & Rochon 2006: 22–23). Business enterprises use their power to manage competition and ensure orderly governance to cope with instability and fundamental uncertainty.
What differentiates the Post Keynesian view from the Austrian and the Marxian approaches is that the former is also concerned with the uncertainty that the power of business enterprises creates for the public at large (Pressman 2007: 26). Exerting power on the state has a boomerang effect in that a reduction in real wages and tax revenues creates uncertainty for business enterprises by decreasing demand from workers and the state. Business enterprises become reluctant to invest in productive capacity. This fuels unemployment and hence poverty. Despite some controversy over the nature of the state in Post Keynesian economics, the state is perceived to be an institution that helps mitigate uncertainty through public policies such as antitrust/competition policy to regulate business competition, fiscal policy to soften business cycles, and social policy to lessen the uncertainty of future incomes, unlike the Marxian or the Austrian views (Pressman 2006: 4–8). For Post Keynesians, the public good reflects the interests of the broader society, not just those of the capitalist class which may be adversely affected from public policies that aim to occasionally achieve the public good.
It is clear from the preceding discussion that the way market governance is conceived depends on the vantage points each theoretical framework takes with respect to the vision of business competition and market power. The mainstream theories of perfect competition and contestable markets are concerned exclusively with the structural properties of the market and hence offer a static understanding of competition. Market power is non-existent or ephemeral and short-lived. By contrast, the Austrian, Marxian, and Post Keynesian approaches perceive it as a dynamic, evolutionary, and historical process. This is the similarity between all three perspectives.
A major difference between the Austrian and the other two heterodox perspectives originates from this fact: the former is interested in the behavior of business enterprises while taking their organizational structure and the pressure of competition as a given; the Marxian and Post Keynesian perspectives emphasize the changing organizational structure of business enterprises with the emergence of the joint stock company and the megacorp, fluctuations in the intensity of competition depending on demand, profit opportunities, and the availability of credit. The upshot of these differences among these three heterodox approaches is the nature of market power, which the Austrian School, in contrast to the Marxian and Post Keynesian traditions, recognizes as transient and temporary.
Both the Marxian and Post Keynesian perspectives underline the permanent and self-augmenting nature of market power. In contrast to equating market power with the number and size of business enterprises and their ability to increase market prices as in the mainstream theories of perfect competition and contestable markets, the Austrian, Marxian, and Post Keynesian approaches broaden the scope of the variables by emphasizing competition on the basis of new products, production technologies, organizational structure, raw material sources, markets, in addition to forming cartels, merging, and acquiring competitors to gain power. However, market power is temporary in the Austrian approach, as opposed to the Marxian and Post Keynesian traditions, which underline the permanent and augmented character of market power together with its reverberations for market governance. Post Keynesians contend that market power is essential for business firms to exert control over their environment and reduce uncertainty (Dunn 2008: 178).
When it comes to market governance, there is a heavy reliance on business enterprises in both the neoclassical theories of perfect competition and contestable markets and Austrian economics. The key public policy message they deliver is that the market should be ‘left alone.’ Business enterprises and consumers are the best ones to know their own interests. Their approach to market governance is limited to the market level and supply conditions. Private market actors and their behavior is the subject of market governance. Yet, there is an image of the market operating in a vacuum, rather than part of an evolving broader social, political, and cultural context. The state is pictured as an external actor that creates a level playing field to keep the market open at best. Moreover, there is resistance against the state’s involvement in the market because politicians and public administrators may not make the best decisions on behalf of the market. Public policy failure has wider adverse consequences than those of market failure.
For Marxians and Post Keynesians, market governance is a broader concept that includes both private sector players, state actors, and non-profit organizations. They locate the market as part of the whole economy and emphasize the role of the financial sector in the process of competition depending on demand and hence profit opportunities in historical time. Not surprisingly, the state is an active player in market governance along with private, public, and non-profit organizations. Mergers, acquisitions, joint ventures, cartels, and all forms of explicit and tacit coalitions and agreements that aim to manage quantity, quality, and price are some of the practices conducted by business enterprises. To deal with them, the state engages in market governance through its marketing boards or regulatory agencies in both the Marxian and Post Keynesian traditions. By and large, the Post Keynesian view is more comprehensive and balanced in studying the role of the state and the significance of the public good in market governance, rather than seeing any public policy in the interest of the capitalist class and hence equating the public good with that of the dominant classes.
The Post Keynesian view is comparatively new in theorizing business competition and the state, compared to the Marxian approach. The former may incorporate how competition as a cyclical process works in such a way that it acts both as a mechanism to pressure business enterprises to innovate or disappear and the attempts of business enterprises to redefine the parameters of competition for their advantage at the same time. Linking the macro and micro levels will be useful to understand how some business enterprises are successful in meeting and thwarting competitive pressures with innovative responses, while others take their place in the dustbins of history. Another lesson Post Keynesian economics may take from the Marxian thought is to unpack the state and theorize it comprehensively, rather than generally treating it as a black box that strives to achieve the public interest under any condition. This will definitely enrich the future Post Keynesian agenda for public policy and governance.
The author thanks the editors of the Handbook for their very valuable comments, along with Joseph Fantauzzi who helped with proof-reading and organizing the bibliography. The usual disclaimer applies.
Alves Jr., A.J., Dymski, G.A., & De Paula, L.-F. 2008. ‘Banking strategy and credit expansion: a post-Keynesian approach.’ Cambridge Journal of Economics, 32 (3): 395–420.
Arena, R. 2015. ‘On the intellectual foundations of Hayek’s and Schumpeter’s economics: an appraisal.’ Journal of Evolutionary Economics, 25 (1): 77–90.
Arnold, R.A. 2008. Economics, 9 th edn. Mason, OH: South-Western Cengage Learning.
Atesoglu, S.H. 1997. ‘A post Keynesian explanation of U.S. inflation?’ Journal of Post Keynesian Economics, 19 (5): 639–649.
Baskoy, T. 2012. ‘Market governance,’ in: J.E. King (ed.), The Elgar Companion to Post Keynesian Economics, 2 nd edn. Cheltenham, UK: Edward Elgar, 387–392.
Baumol, W. 1982. ‘Contestable markets: an uprising in the theory of industry structure.’ American Economic Review, 72 (1): 1–15.
Baumol, W.J., Binder, A.S., Lavoie, M., & Seccareccia, M. 2009. Microeconomics: Principles and Policy, 1 st Canadian edn. Toronto: Nelson.
Blanchard, O. & Melino, A. 1999. Macroeconomics, 1 st Canadian edn. Scarborough, ON: Prentice Hall.
Bork, R.H. 1967. ‘The goals of antitrust policy.’ American Economic Review, 57 (2): 242–253.
Boscheck, R. 2008. ‘Strategies, markets and governance,’ in: R. Boscheck, C. Batruch, S. Hamilton, J.-P. Lehmann, C. Pfeiffer, U. Steger, & M. Yaziji. Strategies, Markets and Governance: Exploring Commercial and Regulatory Agendas. Cambridge, UK: Cambridge University Press, 3–32.
Dunn, S.P. 2008. The ‘Uncertain’ Foundations of Post Keynesian Economics: Essays in Exploration. London: Routledge.
Eichner, A.S. 1969. The Emergency of Oligopoly: Sugar Refining as a Case Study. Baltimore, MD: John’s Hopkins Press.
Eichner, A.S. 1976. The Megacorp and Oligopoly: Micro Foundations of Macro Dynamics. Cambridge, UK: Cambridge University Press.
Eichner, A.S. 1983. ‘The micro foundations of the corporate economy.’ Managerial and Decision Economics, 4 (3): 136–152.
Eichner, A.S. 1985. Toward a New Economy: Essays in Post-Keynesian and Institutionalist Theory. Armonk, NY: M.E. Sharpe.
Eichner, A.S. & Kregel, J.A. 1975. ‘An essay on post-Keynesian theory: a new paradigm in economics.’ Journal of Economic Literature, 13 (4): 1293–1314.
Endres, A.M. 1997. Neoclassical Microeconomic Theory: The Founding Austrian Version. London: Routledge.
Fernandez-Huerga, E. 2013. ‘The market concept: a characterization from institutional and Post-Keynesian economics . ’ American Journal of Economics and Sociology, 72 (2): 361–385.
Fligstein, N. 1996. ‘ Markets as politics: a political-cultural approach to market institutions.’ American Sociological Review, 61 (4): 656–673.
Hayek, F.A. 1948. Individualism and Economic Order. Chicago: University of Chicago Press.
Hayek, F.A. 1978. New Studies in Philosophy, Politics, Economics and the History of Ideas. Chicago: Chicago University Press.
Henry, J.F. 2012. ‘Time in economic history,’ in: J.E. King (ed.), The Elgar Companion to Post Keynesian Economics, 2 nd edn. Cheltenham, UK: Edward Elgar, 528–533.
High, J. 1984. ‘Bork’s paradox: static vs. dynamic efficiency in antitrust analysis.’ Contemporary Policy Issues, 3 (2): 21–32.
Hilferding, H. 1981. Finance Capital: A Study of the Latest Phase of Capitalist Development. London: Routledge.
Janberg, V. 2015. ‘Schumpeter and Mises as ‘Austrian Economists.’ Journal of Evolutionary Economics, 25 (1): 91–105.
Jo, T.-H. 2013. ‘Saving private business enterprises: a heterodox microeconomic approach to market governance and market regulation.’ American Journal of Economics and Sociology, 72 (2): 447–467.
Jo, T.-H. & Henry, J.F. 2015. ‘The business enterprise in the age of money manager capitalism.’ Journal of Economic Issues, 49 (1): 23–46.
Kalecki, M. 1941. ‘A theorem on technical progress.’ Review of Economic Studies, 8 (3): 178–184.
Kalecki, M. 1962. ‘Observations on the theory of growth.’ Economic Journal, 72 (285): 134–153.
Kenyon, P. 1979. ‘Pricing,’ in: A.S. Eichner (ed.), A Guide to Post-Keynesian Economics. White Plains, NY: M.E. Sharpe, 34–45.
Kirzner, I.M. 1985. Discovery and the Capitalist Process. Chicago: University of Chicago Press.
Langlois, C.C. 1993. ‘Monopoly price determination in the operational unit period.’ Journal of Post Keynesian Economics, 16 (1): 81–103.
Lavoie, M. 2001. ‘Pricing,’ in: R.P.F Holt & S. Pressman (eds.), A New Guide to Post Keynesian Economics. London: Routledge, 21–31.
Lavoie, M. 2014. Post-Keynesian Economics: New Foundations. Cheltenham, UK: Edward Elgar.
Lee, F.S. 1998. Post Keynesian Price Theory. Cambridge: Cambridge University Press.
Lee, F.S. 2002. ‘Post Keynesian economics (1930–2000): an emerging heterodox economic theory of capitalism,’ in: D. Dowd (ed.), Understanding Capitalism: Critical Analysis from Karl Marx to Amartya Sen. London: Pluto Press, 108–131.
Lee, F.S. 2010. ‘Alfred Eichner’s missing ‘complete model’: a heterodox micro-macro model of monetary production economy,’ in: M. Lavoie, L.-P. Rochon, & M. Seccareccia (eds.), Money and Macrodynamics: Alfred Eichner and Post-Keynesian Economics. Armonk, NY: M.E. Sharpe, 22–42.
Lee, F.S. 2013a. ‘Post-Keynesian price theory: from pricing to market governance to the economy as a whole,’ in: G.C. Harcourt & P. Kriesler (eds.), The Oxford Handbook of Post-Keynesian Economics, Vol. 1: Theory and Origins. Oxford: Oxford University Press, 467–484.
Lee, F.S. 2013b. ‘Competition, going enterprise, and economic activity,’ in: J.K. Mouded, C. Bina, & P.L. Mason (eds.), Alternative Theories of Competition: Challenges to the Orthodoxy. London: Routledge, 160–173.
Lenin, V.I. 1963. Imperialism: The Highest Stage of Capitalism, A Popular Outline. New York: International Publishers.
Littlechild, S.C. 1978. Fallacy of the Mixed Economy: An Austrian Critique of Conventional Mainstream Economics and of British Economic Policy. London: Institute of Economic Affairs.
Lyons, B. 2004. Canadian Microeconomics: Problems and Policies, 7 th edn. Toronto: Pearson Education.
Marx, K. 1952. Wage Labor and Capital. Moscow: Progressive Publishers.
Marx, K. 1967. Capital: A Critique of Political Economy, Vol. 1. New York: International Publishers.
Marx, K. 1968. Theories of Surplus-Value, Volume IV of Capital, Part II . Moscow: Progress Publishers.
Marx, K. 1973. Grundrisse: Foundations of the Critique of Political Economy. Middlesex, UK: Penguin Books.
Marx, K. 1976. Capital: A Critique of Political Economy, Vol. 3. London: Penguin Books.
Marx, K. 1994. Selected Writings, L.H. Simon (ed.), Indianapolis, IN: Hackett Publishing Company.
Mantzavinos, C. 1999. ‘Carl Menger and the theory of competition.’ Journal of Economics and Statistics, 219 (5/6): 685–686.
Metcalfe, J.S. 2013. ‘Schumpeterian competition,’ in: J.K. Moudud, C. Bina, & P.L. Mason (eds.), Alternative Theories of Competition: Challenges to the Orthodoxy. London: Routledge, 111–126.
Minsky, H.P. 1986. Stabilizing an Unstable Economy. New Haven, CT: Yale University Press.
Monvoisin, V. & Rochon, L.-P. 2006. ‘Economic power and the real world: a post-Keynesian analysis of power.’ International Journal of Political Economy, 35 (4): 5–30.
Nicholson, W.E. 1997. Intermediate Microeconomics and its Application, 7 th edn. Fort Worth, TX: Dryden Press.
O’Driscoll, G.P. & Rizzo, M.J. 2015. Austrian Economics Re-Examined: The Economics of Time and Ignorance. London: Routledge.
Ong, N.-P. 1981. ‘Target pricing, competition, and growth.’ Journal of Post Keynesian Economics, 4 (1): 101–116.
Palay, T.M. 1984. ‘Comparative institutional economics: the governance of rail freight contracting.’ Journal of Legal Studies, 13 (2): 265–287.
Peters, G. 2012. ‘Is governance for everybody? The use and abuse of governance,’ in: A.M. Bissessar (ed.), Governance: Is it for Everyone? New York: Nova Science Publishers, 1–12
Pressman, S. 2006. ‘Alternative views of the state,’ in: S. Pressman (ed.), Alternative Theories of the State. Basingstoke, UK: Palgrave Macmillan, 113–138.
Pressman, S. 2007. ‘What can Post Keynesian economics teach us about poverty?’ in: R.P.F. Holt & S. Pressman (eds.), Empirical Post Keynesian Economics: Looking at the Real World. Armonk, NY: M.E. Sharpe, 21–43.
Sawyer, M.C. 1989. The Challenge of Radical Political Economy: An Introduction to the Alternatives to Neo-Classical Economics. Savage, MD: Barnes & Noble Books.
Sawyer, M.C. 1994. ‘Post-Keynesian and Marxian notions of competition,’ in: M. Glick (ed.), Competition, Technology and Money: Classical and Post-Keynesian Perspectives. Aldershot, UK: Edward Elgar, 3–23.
Schumpeter, J.A. 1950. Capitalism, Socialism and Democracy, 3 rd edn. New York: Harper and Row.
Scott, A. 2000. ‘Economic geography: the great half-century.’ Cambridge Journal of Economics, 24 (4): 483–504.
Sen, K. & Vaidya, R.R. 1995. ‘The determination of industrial prices in India: a Post Keynesian approach.’ Journal of Post Keynesian Economics, 18 (1): 29–52.
Shapiro, N. 1976. ‘The neoclassical theory of the firm.’ Review of Radical Political Economics, 8 (4): 17–29.
Shapiro, N. & Mott, T. 1995. ‘Firm-determined prices: the post-Keynesian conception,’ in: P. Wells (ed.), Post-Keynesian Economic Theory. Boston: Kluwer Academic Publishers, 35–48.
Steindl, J. 1952. Maturity and Stagnation in American Capitalism. Oxford: Basil Blackwell.
Steindl, J. 1987. ‘Kalecki’s theory of pricing: notes on the margin,’ in: G. Fink, G. Poll, & M. Riese (eds.), Economic Theory, Political Power and Social Justice: Festschrift Kazimierz Laski. New York: Springer-Verlag, 1–18.
Van Hoi, P., Mol, A.P.J., & Oosterveer, P.J.M. 2009. ‘Market governance for safe food in developing countries: the case of low-pesticide vegetables in Vietnam.’ Journal of Environmental Management, 91 (2): 380–388.
Veblen, T. 1923. Absentee Ownership and Business Enterprise in Recent Times: The Case of America. New York: B.W. Huebsch.
Williamson, O.E. 2005. ‘The economics of governance.’ American Economic Review, 95 (2): 1–18.