Alexander Mahr, “Monopolistische Preispolitik im Konjunkturzyklus” (1949)

This article is a single-author theoretical study of monopoly pricing over the business cycle. Mahr returns to a problem he had treated in 1932—the relative rigidity of monopoly prices in depression—and gives it a fuller analytical basis. The essay proceeds from demand elasticity and cost changes to imperfect knowledge, cyclical demand shifts, cartels, oligopoly, and the macroeconomic effects of price rigidity.

Bei der Untersuchung unseres Problems ist es zweckmäßig, von der grundlegenden Bedeutung des Elastizitätsgrades der Nachfrage für die Höhe des Monopolpreises auszugehen.

English translation: In investigating our problem, it is expedient to start from the fundamental significance of the degree of elasticity of demand for the level of the monopoly price.

Mahr begins from the standard monopoly condition but immediately tests it at its limit. If demand is unit-elastic or inelastic, formal theory can imply that the monopolist should restrict output drastically, because additional sales do not sufficiently increase revenue. Mahr treats this not as a realistic prediction but as evidence that pure monopoly theory must be qualified by institutional and practical limits.

Woraus erklärt sich diese Diskrepanz zwischen der theoretischen Ableitung und den Tatsachen?

English translation: How is this discrepancy between the theoretical derivation and the facts to be explained?

The answer is that real monopoly power is rarely absolute. Even where a firm dominates a market, its price is constrained by substitutes, potential entrants, foreign competition, consumer resistance, and possible state intervention. Monopoly pricing is therefore not unlimited discretion, but a constrained search for profit near an upper boundary of what the market and public authorities will tolerate.

Einerseits kommt hier in Betracht die Gefahr der Konkurrenzierung durch Surrogate, die um so größer wird, je höher der Preis des Originalgutes hinaufgetrieben wird.

English translation: On the one hand, one must consider the danger of competition from substitutes, which becomes the greater the higher the price of the original good is driven up.

This framework explains Mahr’s central claim about cyclical rigidity. When costs fall, a monopolist may keep prices stable and enlarge the margin; when costs rise, he may also hesitate to raise prices if he is already close to the practical ceiling. Competitive prices, by contrast, tend to reflect cost changes more directly. Monopoly prices therefore move less readily than competitive prices, not because monopolists are irrational, but because the profit maximum is shaped by elasticity, market limits, and strategic caution.

Bei unelastischer Nachfrage oder wenn die Nachfrageelastizität gleich eins ist, wird also der Monopolpreis trotz Änderung der Kosten ganz überwiegend unverändert bleiben, während der Konkurrenzpreis sich durchaus der Kostenänderung anpassen würde.

English translation: With inelastic demand, or when the elasticity of demand equals one, the monopoly price will therefore, despite a change in costs, remain overwhelmingly unchanged, whereas the competitive price would fully adjust to the change in costs.

Mahr’s mathematical discussion refines rather than replaces this thesis. With a linear demand curve, only part of a cost change is passed into monopoly price; with other demand shapes, the degree of pass-through varies. The article’s theoretical point is thus not a universal markup formula, but a comparative proposition: monopoly price adjustment is typically less elastic than competitive adjustment and depends on the form and movement of demand.

He then weakens the assumption that the monopolist knows the whole demand curve. In practice, monopolists experiment locally with small changes in price and output and may settle for a relative rather than absolute profit maximum. This uncertainty reinforces inertia, especially in depression, when energetic price reductions appear risky and may not restore demand enough to compensate for lower margins.

For cyclical demand, Mahr distinguishes between a proportional fall in quantities demanded at all prices and a parallel leftward shift of the demand curve. If depression resembles the first case, the profit-maximizing monopoly price may remain unchanged while output falls. Mahr argues that this is plausible because downturns reduce mass purchasing power especially in lower price ranges, while higher-income demand may persist at established prices.

The institutional analysis then broadens. Unified trusts and multi-plant monopolies can behave like single monopolists, while cartels are still more rigid because price changes require agreement among firms with different costs and interests. High-cost cartel members especially resist reductions. In oligopoly, interdependence and fear of price war similarly favor immobility.

The essay’s final significance is macroeconomic. Monopoly and cartel pricing may look stabilizing because prices fall less sharply, but the burden of adjustment is shifted to output and employment. In depression, monopolists protect prices by cutting production, which reduces work, income, and purchasing power, thereby intensifying the downturn. Mahr thus treats monopoly price rigidity not merely as a distributive issue, but as a mechanism through which cyclical contractions become cumulative.