3 - Developments in the doctrine of administered prices

Summary

Means worked on his doctrine of administered prices for 50 years. This, combined with the intense controversy over administered prices, meant that many of the non-Means' contributions to the doctrine occurred simultaneously with his own work. One contribution, perverse prices, was developed by John M. Blair. Blair had, since 1938, been interested in Means' doctrine of administered prices. One aspect of the doctrine in which he had particular interest was the movement of prices and production over the cycle of business activity. In 1958 he “discovered” the phenomenon that “in periods of moderate underutilization of capacity, prices in oligopolistic industries will not decline, will not remain inflexible, but will tend to rise” (Blair, 1959, p. 435). Blair initially couched an explanation of these “perverse prices'” movements in terms of cost-push inflation, shift from price to non-price competition, and business enterprises increasing their target rate of return; by 1972 he associated them with a short-term variant of target rate of return pricing. He argued that perverse price movements occurred when a business enterprise using target rate of return pricing procedures attempted to attain its target rate of return in the short term instead of over the cycle of business activity by adjusting the standard volume flow rate of output variable. Once the explanation for perverse prices was articulated, Means quickly absorbed it into his doctrine (see p. 60 and n. 10) (Blair, 1959, 1972, 1974).