The businessman is concerned with competition and market structure because in many antitrust cases one of the first tasks is that of measuring the degree of competition and the effects of business actions on competition. Since it is not easy to segregate the causative forces behind a given effect, it is not easy to observe competitive forces in action. Economic analysis can become a real servant of the law if it is able to furnish criteria for judging the competitive nature of market action. Care must be exercised so that the economic and legal interpretation of such terms as monopoly, competition, or unfair practices have a similar meaning to all users. Likewise, it is necessary that the assumptions of the economist be understood by the jurist.
 Most economists more or less support competition. This support is based on the assumption that competition should bring prices closer to the demand-and-supply level, that competitive forces tend to improve the quality of the product, that competitive forces will keep prices in rein, and that these forces will result in a more flexible price system.
It is in connection with many of the items covered in this chapter that opinions of businessmen, judges, and economists differ (economists often have-been criticized as being too theoretical). We have indicated what the nature of the argument over competition is, and whether competition takes place in an oligopoly.
Another difficulty arises over the confusion between the general price level and particular commodity prices. In the long run, an entrepreneur must receive sufficient revenue to compensate him for his costs of production. It is in terms of this longer run period that he makes his production and investment decisions. The business manager is not in accord with economic analysis that is premised on the ever-present principle of diminishing returns, as evidenced by the increasing cost segment of the average and marginal cost curves. He holds that by various technological changes and that by varying proportions of factors, the arrival of the point of diminishing returns may be postponed indefinitely.
Still another argument concerns itself with time lags and prices. Since the real world of business does not show instantaneous changes, the entrepreneur questions whether the demandand-supply curves of economic analysis are as effective as proposed. There is mutual agreement that price is important as the regulator of the flow of national resources, but, what price? Argument and controversy over the nature of value and price and their determination are not something of recent vintage. Throughout the development of economic thought, constant bickering over what causes value is noted.
The foregoing should not be taken to minimize the significance of the role of prices in business life. Prices form the very backbone of the modern financial economy, and everything relating to their determination is of importance to the entrepreneur. With an effective mobility of production factors, the price mechanism should become the regulator of the alternative use of resources. Price is entrusted to measure the returns in distribution and, hence, to allocate the factors of production to their most profitable usages.
It is not easy for the business manager to tell exactly how he has arrived at a specific price. Although he might try to apply the principles of economic analysis, there is a large gray area in which he has no explanation. Certain "rules of thumb" often are applied, and so long as a profit results there is little impetus to effect a change. This becomes important if any type of over-all planning agency were to be entrusted with the regulation of prices. It would seem that such a type of price determination would be concerned more with industry than with firm levels. The idea of Alfred Marshall's representative firm 3 or the principle of bulk line costs could be used. These costs are those that permit the greater bulk of the commodity to be offered, but they are not fair to all firms included since they are too low for some and too high for others. There is a question, too, of whether the entrepreneur concerns himself with marginal costs--the added costs of added production--or with average costs. It would seem appropriate to argue that at any given stage of production he seeks to have his costs returned and that he is more interested in average concepts than in marginal ones and, better still, in total costs and total revenue.
We must remember also that many prices have become institutionalized or customary through long usage. Such prices even may be linked with the existence of a particular coin, such as a five-cent package of chewing gum or a ten-cent bottle of soft drink. At times, producers have been guilty of depreciating quality or cutting quantity to maintain this customary price, with the hope the consumers will not recognize the difference.
From our discussion of the entrepreneur and his market behavior, we should remember that in this area he deals with a number of variables-demand, supply, costs, revenue, price--all of which show independent and dependent relationships. Just what sort of response buyers will make to a given or changed price structure will depend on a whole series of factors, a situation that is not always easy for the entrepreneur to analyze correctly'. But these are all important factors which he must calculate carefully; the greater his degree of accuracy, the less the risk entailed.
We ought to point out that in the last few years business concerns have employed economists on their staffs in all sorts of capacities. If nothing else, this is evidence that the entrepreneur realizes the complexity of the problem that confronts him in this area. Likewise, there is an occasional sentiment for supplying Supreme Court Justices with economic assistants or clerks, not unlike the legal clerks which they now employ.
In concluding this section, we note that the Federal statute books are filled with laws dealing with pricing. Many of them interfere with marketing forces. Although the more important laws are treated elsewhere, we may mention them here at the end of a chapter which has emphasized the economic side of the price system. In its business dealings, the Federal Government makes use of minimum wage legislation, price supports, subsidies, ceiling prices, price freezes, price formulas, public auctions, administered prices, and sealed bids. In addition, there are the Sherman Act of 1890, as amended by the Miller-Tydings Act of 1937; the Clayton Act of 1914, as amended by the Robinson-Patman Act of 1936; and the McGuire Act of 1952. Government agencies also influence the price for loans (interest), transportation rates, and the price of products patented and copyrighted under Federal law. State governments also play their part in fixing usury laws, the prices of milk, and public utility rates.
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