The Origin of Sylos' Postulate: Modigiani's and Sylos's Labini contributions to Oligopoly Theory

Abstract:     
According to Bhagwati the really fundamental innovation in the oligopoly theory came with the realization that oligopoly must deal with ‘potential’ competition as distinct from ‘actual’ competition. Paolo Sylos Labini’s "Oligopoly Theory and Technical Progress" (1957) is considered one of the major contributions to entry-prevention models, especially after Franco Modigliani’s brilliant formalization (1970, 297-298).

Nonetheless, in his article review (JPE, 1958), Modigliani neglected Sylos Labini’s major aims, in particular the demonstration of the dynamic relation between industrial concentration and economic development. Modigliani, in fact, only focused on Sylos’ microeconomic analysis and the determination of the long run equilibrium price and output, with a special attention to the role played by firms’ anticipations. In doing so he also shifted the attention from Sylos' objective analysis to a subjective approach to the oligopoly problem.

My paper discusses Sylos’ and Modigliani’s different approaches, in particular the origin of the so-called Sylos' Postulate, placing Modigliani’s interpretation of Sylos’ oligopoly theory in the research context he was carrying on at Carnegie over the 1950s on firms’ behavior under uncertainty.

Keywords: oligopoly theory, limit-price theory, Sylos’ postulate, anticipations

JEL Classification: B21, D43, L13

working papers series