Money, Banks and Finance in Economic Thought

The development of industrial organization in Harvard: Oligopoly and tacit collusion (1933-1952)

Thibault Guicherd, TRIANGLE
Chirat Alexandre, TRIANGLE

This article will come back on the development of industrial organization in Harvard. More specifically, it aims to understand better the conditions for the emergence of the Harvard school which appearance quite often seems like a “spontaneous generation” of authors. Indeed, except for the place (Harvard University) and the time period (from the 1930s to the 1950s), very little has been said about a potential research agenda or a set of common and identifiable tools and concepts. This article identifies a specific subject of study that seems to unify all these authors: the development of the theory of the oligopoly in tacit collusion. This latter theory was developed in 1933 by Edward Chamberlin as part of his theory of monopolistic competition and was gradually taken up in several contributions from the 1930s and early 1940s, all of which authors (Mason, Galbraith, Bain, de Chazeau, Triffin, Kaysen, Schumpeter) were directly linked to Harvard during the publication or the writing of their work. The creation of the NRA in 1934 strengthens interest in the phenomenon. The possibility of tacit collusion in oligopoly then allows the authors to better understand competitive mechanisms and obvious price rigidity. Simultaneously, these authors encounter a range of theoretical problems (such as the differentiated oligopoly, the notion of large group, the meaning of the concept of price rigidity, the hypothesis of rationality or behaviour to be retained) that need to be solved and which guide the research of this community. The analysis of tacit collusion in oligopoly then enters into debates among economists about the “basing point system” which was at the time used in the iron, steel and cement industries, leading the authors to raise questions about the effectiveness of existing anti-trust laws. Can this type of price-setting mechanism be considered truly competitive when it is an oligopoly-like situation where prices are rigid and differentiated? The development of tools for the identification of these oligopolies translates into a set of contributions focusing on strategic behaviour, market typologies or the use of price administration. It leads some authors to restudy the nature of the competition and the foundations of American capitalism.

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Keywords: oligopoly, tacit collusion, industrial organization, Harvard School

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