Piero Sraffa - Free

122 Piero Sraffaversa in the case of a rate of profits below the average). This type ofcompetition bears little relation to any particular firm’s ability to set theprice of its own product. Nor is it related to the size of any individualfirm as a proportion of the entire industry. The only necessary conditionsare that technological discontinuities related to a minimum plantsize do not play a relevant role, and that legal (and more generally,institutional) obstacles to the free movement of capital between sectorsdo not exist, so that no barriers to entry exist for new (potential)producers. 14 The classical (and Sraffian) conception of competition thusrelies on completely different foundations than the traditional marginalistdefinition, which is based on the requirement of a large number offirms forming an industry, such that it is impossible for any one of themto exert an influence on the price of their output. 15From the point of view of their respective analytical implications, thedifferent conceptions of competition can be distinguished by notingthat the classical one is linked to the simple assumption of a uniformrate of profits across the different productive sectors of the economy,while the marginalist conception is linked to the stricter hypothesisthat each single producer in a given industry should consider the marketprice as given. Sraffa’s 1925 critique of the marginalist theory ofthe firm (discussed earlier in Chapter 1) suggests that the marginalistconception of competition is either logically incoherent or based onad hoc assumptions leading to a distorted representation of reality. Theclassical concept of competition, on the other hand, is a useful analyticalinstrument in relation to modern industrial conditions, just as it was inthe time of Smith and Ricardo. 1614Sylos Labini’s (1956) and Bain’s (1956) theories of oligopoly are based on ‘barriersto entry’. The two authors reached analytically similar results independently.However, the role of barriers due to technological discontinuities (‘concentratedoligopoly’) and the link between this view of oligopoly and the classical notionof competition are stressed only by Sylos Labini, while both stress the role ofproduct differentiation (‘differentiated oligopoly’).15For a reappraisal of the classical conception of competition, in contrast to thetraditional marginalist approach, cf. Breglia (1965: 89–93 and p. 92: ‘competitiveconditions are not assured by a large number of producers, but by the possibilitythat an additional producer may join the existing producers: competition isassured by an “open door” (or free entry) rather than a “closed door”’). Cf. alsoSylos Labini (1976).16As Sylos Labini (1956) suggested, oligopoly – which can be considered thedominant market form in contemporary economies – can be studied by means ofthe notion of the barriers to entry in any given sector, utilising free competitionand the competitive rate of profit as the reference (extreme) case.7.4 The realisation problemInterpreting Production of Commodities 123Sraffa’s approach also recalls the Marxian representation of the influenceof demand on prices. In Marx’s writings the problem of demandis implicitly broken down into two distinct problems, analysis of thelevels of production and analysis of the absorption or sale (realisation)of the outputs produced. Neither of these problems is considered inSraffa’s analysis. From a logical point of view, the determinants ofthe levels of production (which enter into Sraffa’s analysis as givens)are upstream of the problem of prices as analysed by Sraffa, while thedeterminants of the realisation problem are downstream, in as much asthey concern the analysis of the relation between quantities producedand quantities sold and the relation between prices of production andmarket prices which lie outside the scope of Sraffa’s analysis. As a resultof the assumption of given levels of production, and the distinctionbetween prices of production and market prices, Sraffa, in effect, canisolate the problem of prices of production without assuming anythingwith respect to the determinants of the levels of production and the saleof the quantities produced (realisation).By keeping the problem of the level of production distinct from theproblem of realisation, the direct link between quantity demanded,quantity supplied and price found in traditional marginalist theory isbroken.At the same time it is possible to achieve a closer correspondencebetween theory and reality, because the existence of two different typesof autonomous decision-making centres can be recognised with thisseparation. The first includes the entrepreneurs, who are ultimatelyresponsible for the decisions that determine the levels of productionin the various sectors; the second, the ‘buyers’, who take the decisionsthat determine the actual purchase (sale from the point of view of theentrepreneurs) of the products produced. This second category is, aswe will see a little later on, substantially different from the traditionaldefinition of ‘consumers’ used in orthodox theory.In the case of the neoclassical mechanism of price determination bymeans of supply and demand curves, the independence of the two centresof decision making is only apparent. Producers are in fact only freeto make mistakes relatively to the only correct solution, correspondingto the equilibrium quantity of product to be sold at the equilibriumprices; this solution is externally imposed upon them by the factorsconsidered as given for the analysis (technology and consumers’ tastes),and under profit maximising condition will eventually assert itself.