Conjectures, reactions and collusive pricing strategies: Revisiting the United States electrical machinery industry, 1956-1962

This paper presents a new empirical industrial organization (NEIO) study of the U.S. electrical machinery industry over the period 1956-62. It is a NEIO study because it emphasizes empirical results.;The major goal is to determine by regressions in conjunction with summary statistical analysis whether General Electric and Westinghouse as a duopoly engaged in collusive pricing of their products over the period under review for the purpose of achieving oligopoly power. One of the secondary but nonetheless important goals is to determine whether the duopoly price discriminated against its customers on the basis of the size of orders.;This study encompasses one of the most significant discussions of NEIO by using conjectural variations theory empirically to determine market structure and behavior within an industry. What is unique about this author's approach is the partitioning of the industry for the period 1956-62 into two parts, with the dominant duopoly at the top of a pyramidal structure and with some 10,000 firms at the base competing mostly among themselves.;The study is presented in four chapters. Chapter 1 is comprised of an introduction, an overview and a statement of the purpose of the study. Chapter 2 first introduces a basic theoretical framework which mathematically defines the profit-maximizing model, and then presents a price reaction model which serves as the basis for developing an econometric model. In Chapter 3, the basic theory is translated into the econometric model which in turn is developed into the study's final empirical form. The core of the study, Chapter 3 also discusses the data and analyzes the results. Chapter 4 brings the study to its conclusion by stating the implications of the exercise and by offering ideas for future study.;Given the data, this study has successfully estimated price conjectural variations which are highly significant and which show that, over the period 1956-62, the duopoly had engaged in collusive behavior, at least in the marketing of switchgear, and had price discriminated against small orders. The study achieved its goals.