Revisiting 'Pricing and the Investment Decision'

'Pricing and the Investment Decision', written with Peter Kenyon and published in Kyklos in 1976 contributes to post-Keynesian economics by analysing the determination of the mark-up of price over unit cost by large oligopolistic firms. Mark-ups are set to provide sufficient retained earnings under expected future conditions to finance the level of the firm's planned investment expenditure. This provides a causal link at the microeconomic level from planned investment to corporate saving via the price level, paralleling the causal link at the macroeconomic level from aggregate investment to national saving and from mark-ups to income distribution. Although the explanation of the mark-up through linking pricing to investment plans is widely accepted as part of post-Keynesian pricing analysis, these contributions have not attracted interest from the mainstream and even amongst among post-Keynesians there are competing explanations of pricing. We discuss the impact that explaining pricing through investment needs has had and relate this outcome to the debate about micro-foundations of macroeconomics.