THE MARKET CONTEXT FOR THE PRICING OF GOODS AND SERVICES Our nation's economic system relies on the market mechanism as the instrument through which resource allocation and distribution decisions are made. The pervasiveness of the underlying forces which create markets, in which exchange activities occur, is dramatically illustrated in R. A. Radford's "The Economic Organization of a P.O.W. Camp." Mr.
Radford describes the spontaneous emergence of a flourishing market in the prisoner of war camps in which he was held during World War II.
Traditional economic thought assumed that markets were fundamentally competitive in nature. Accordingly, it gave relatively little attention to departures from the competitive ideal. Reality, coupled with refinement of analytical techniques and language, has led modern economists to distinguish a variety of market structures. Clair Wilcox, Professor of Economics at Swarthmore College, succinctly delineates the range of market structures from perfect competition to absolute monopoly in Competition and Monopoly in American Industry.
Substantial departures from the competitive ideal resulted in various reactions in public policy. One of the earliest and most significant was the attempt to preserve competitive markets by making unreasonable restraints of trade and monopoly illegal. The antitrust laws, which embody this policy, and their enforcement are discussed by Wendell Berge, former Assistant Attorney General in charge of the Antitrust Division of the Department of Justice.
A sharply contrasting policy reaction is exemplified by the fair trade laws, which permit resale price maintenance agreements to be legally enforceable. This policy is critically evaluated in the 1955 Report of the Attorney General's National Committee to Study the Antitrust Laws.
Our farm program, in its price support and output restriction aspects, represents another basic departure from the antitrust attempt to preserve competition. This deviation, which affects what is otherwise the most perfectly competitive sector of the American economy, is explained and given historical perspective by John K. Galbraith, Professor of Economics at Harvard University, in American Capitalism. This book, which presents his interesting theory of countervailing power, has drawn much attention.
The existence of certain industries, characterized by conditions which make insistence on competitive markets inefficient and impractical, has led to government adoption of the public utility approach. This approach recognizes natural monopolies, gives them legal status, and regulates them. It is critically evaluated by Walter Adams and Horace M. Gray in Monopoly in America.
Many people have the notion that bigness in business is, by itself, a fundamental departure from competition. This idea is challenged by Sumner H. Slichter in "A Defense of Bigness in Business." A wide range of views exists today on the trade union movement's influence on market competitiveness. One view sees trade unions as organizations which equalize labor's bargaining power with that of modern industry, thereby achieving better balance between seller and buyer in labor markets. Another view sees trade unions as creating serious monopolistic restraints in both labor and product markets. The issue is examined by Edward S. Mason, Dean of the Graduate School of Business Administration at Harvard University, in his "Labor Monopoly and All That."