The optimality of pure competition in the capacity problem *

The problem of optimum (‘efficient’) pricing under conditions of complementary demands (the ‘capacity’ problem) has been formulated in its most essential form by Steiner, and the solution has been presented. ¹ However, neither Steiner nor the discussants ² of his article have pointed out that complementary demand functions in no way vitiate the general rule that a purely competitive market structure yields optimum prices. Yet this fact is of substantial interest. It demonstrates the pervasiveness of pure competition as an optimum situation. Joint use of capacity in no way gives rise to a market failure! Indeed it is surprising that Steiner himself did not perceive this because he discusses various pricing schemes which might attain the optimum, even without knowledge of demand conditions on the part of the price-maker. He concludes that such measures cannot be guaranteed to achieve the efficient prices.