Downward’s Pricing Theory in Post-Keynesian Economics: Chapter by Chapter Summaries

Below are links to my various posts giving chapter by chapter summaries of Paul Downward’s Pricing Theory in Post-Keynesian Economics: A Realist Approach (Cheltenham, UK, 1999).

(1) “Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 1,” January 16, 2014.

(2) “Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 2,” January 17, 2014.

(3) “Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 3,” January 18, 2014.

(4) “Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 4,” January 21, 2014.

(5) “Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 5,” January 21, 2014.

(6) “Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 6,” January 22, 2014.

(7) “Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 7,” January 23, 2014.

(8) “Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 8,” January 23, 2014.

(9) “Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 9,” January 23, 2014.

Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 9

Chapter 9 of Paul Downward’s Pricing Theory in Post-Keynesian Economics: A Realist Approach (Cheltenham, UK, 1999) presents his conclusions.

Downward concludes that critical realism is the appropriate method for Post Keynesian economics (Downward 1999: 181).

For Downward, the

“behavioural ‘core’ of post Keynesian pricing theory can be identified through the focus on the mark-up. In deference to research on actual agent decision making under conditions of uncertainty, post Keynesians should emphasise that prices are set by firms adding a mark-up to some measure of average costs. The mark-up is determined ex ante in the uncertain pursuit of some (possibly multiple) objective(s).” (Downward 1999: 181).

This is in contrast to neoclassical economics that neglects overhead/fixed costs, and frequently has unrealistic assumptions in its behaviour theory.

Econometric studies are only a limited and incomplete form of evidence on pricing and the fundamental empirical work must remain qualitative case studies (Downward 1999: 183).

Demand obviously influences flexprices, and it can influence mark-up prices too, but does so to a lesser degree than costs. Downwards’ own research finds that “prices display considerable inertia” (Downward 1999: 184).

Businesses’ general unwillingness to change prices is rational, and is part of their behavioural attempts to overcome uncertainty and stabilise expectations (Downward 1999: 187).

These conclusions are highly problematic for neoclassical economics.

BIBLIOGRAPHY
Downward, Paul. 1999. Pricing Theory in Post-Keynesian Economics: A Realist Approach. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.