Oligopoly and Inflation

Abstract

The simple fact that prices under monopoly are higher than under competitive conditions has led some people to associate the continuous rises in price-levels during the postwar period with the existence of non-competitive markets. Numerous empirical studies on administered prices are based on this hypothesis. It was, however, the obvious flaw that monopolies do account for higher prices but not for their continuous rise. This phenomenon cannot be explained by conventional analysis of monopolized markets. If we still want to maintain this approach to inflationary processes, it has to be supplemented by taking into consideration additional factors that might close the gaps mentioned above. This will be attempted in two stages: after dealing with the problem on a rather abstract level using strongly simplifying assumptions, we shall try to show the relevance of our analysis to present-day reality in the final part.