Markup Pricing and the Auto Industry: A Partial Explanation of Stagflation in an Oligopolistic Economy

A bstract . Price leadership firms and especially wage leadership unions frequently are not operating at points of maximization in the neoclassical sense, because contrived high level demand has brought low price consciousness or elasticity of demand for their commodities or services. Accordingly, they can get higher profits or wages anytime they choose to raise their price except during severe recession. If output falls as a consequence, goveniment and the central hank have stood ready to expand total spending. The contrived high demand has interacted with oligopolistic practices to obviate the distinction between elasticity for the firm and that of its industry, with empirical studies showing demand elasticity commonly not much above unity. The automobile industry is the focus of attention in this study. It appears that stable and high employment market capitalism no longer is possible, because at a minimum t requires generalized maximization behavior, which involves operation against constraining supply and demand parameters.