Scale, scope and network economies
In the same year of Marshall’s Principles, the Italian public economist Antonio De Viti de Marco, in dealing with the telephone industry, recognized for the first time in the literature the network effects: he wrote that utility increases with the number of subscribers with whom consumers can communicate; he also saw this phenomenon as a source of monopoly power.
In 1896-97 Vilfredo Pareto defined competition as the situation in which firms are price-takers, and monopoly as the situation in which firms are pricesetters. He also analysed the spontaneous formation of industrial combinations, and was convinced that without the support of government (which he decidedly opposed) they could not last. In 1896 Arthur T. Hadley, in the US, dealt with the effects of the time needed to enter a market, developed the theory of “ruinous competition” for firms with high fixed costs, and described the process by which price competition between two firms in a natural monopoly leads to the survival of a single firm. In 1899 J.B. Clark added two more conditions to those suggested by Edgeworth, in the direction of defining perfect competition: the instantaneous mobility of resources and the identification of competition with a stationary equilibrium. He was a specialist on trusts, which he analysed with the historical as well as the marginalist method. At first he very much believed in the effectiveness of the threat of entry by new firms, and on this basis he criticized antitrust laws; but later he recognized the dangerous role of firms’ strategies designed to eliminate potential competition and called for more government control.