Wage price policies of industry are the result of a complex of forces -- no single explanation has been found which applies to all cases. The purpose of this paper is to analyze one possible force which has not been treated in the literature, but which we believe makes a significant contribution to explaining the wage price behavior of a few very important industries. While there may be several such industries to which the model of this paper is applicable, the authors make particular claim of relevance to the explanation of the course of wages and prices in the steel industry of the United States since World War 2,. Indeed, the apparent stiffening of the industry's attitude in the recent steel strike has a direct explanation in terms of the model here presented.
The model of this paper considers an industry which is not characterized by vigorous price competition, but which is so basic that its wage price policies are held in check by continuous critical public scrutiny. Where the industry's product price has been kept below the ``profit maximizing'' and ``entry limiting'' prices due to fears of public reaction, the profit seeking producers have an interest in offering little real resistance to wage demands. The contribution of this paper is a demonstration of this proposition, and an exploration of some of its implications.
In order to focus clearly upon the operation of this one force, which we may call the effect of ``public limit pricing'' on ``key'' wage bargains, we deliberately simplify the model by abstracting from other forces, such as union power, which may be relevant in an actual situation. For expository purposes, this is best treated as a model which spells out the conditions under which an important industry affected with the public interest would find it profitable to raise wages even in the absence of union pressures for higher wages.