Re: scale economies

["William S. Lear" <rael@xxxxxxxxxx>]

On Sat, November 15, 1997 at 21:58:14 (-0500) Doug Henwood writes:
>Thad Williamson wrote:
>
>>can you tell us who wrote this so we can get whatever hard data they have?
>
>It was from Charles Mueller <cmueller@xxxxxxxxxxxxx>, Editor, ANTITRUST LAW
>& ECONOMICS REVIEW, http://webpages.metrolink.net/~cmueller.

On this page, he has the claim that "Economics has been hijacked by
politics, at a vast cost to the public."  I kinda thought that the
opposite were true.  Economics hijacks politics, and structures a
compliant legal system which can be used in turn structure markets and
reduce "fundamental uncertainty".

As to why GM is so large, I have a question or two.  I notice in
Walter Adams and James Brock's essay on automobiles (in *The Structure
of American Industry, Adams and Brock, eds) that even in 1933, GM had
41% of the U.S. market, this peaked in the decade 1976-1985 at 59%,
and fell to 42% in 1992.  I believe that GM does a fair amount for the
U.S. military, does it not?  What effect would the guaranteed public
market have on firm size?  Could this allow them to grow larger than
optimal production scale?

Adams and Brock discuss public policy toward the auto industry.  They
write:

    Recognition   of   and   respect  for  mutual  oligopolistic
    interdependence among the Big Three became solidified in the
    post-World  War  II  era. This, together with the protection
    afforded   by   formidable  entry  barriers,  insulated  the
    domestic industry from effective competition. Noncompetitive
    conduct,   including   tacit   vertical   collusion  between
    management  and  organized labor and steady price-wage-price
    escalation, flourished in this noncompetitive milieu.

One should also add non-enforcement of anti-trust law...

They also note that when Reagan slapped the Japanese with import
quotas, the U.S. auto industry simply raised prices.  What would these
companies have done with that extra cash had they come from the
bank-centered Japanese system?  I'll bet they would have plowed it
back into increasing efficiency, and they wouldn't even have gotten
this bloated in the first place under such a system.


Bill