The industry of this model is so important that its wage and price policies are affected with a public interest. Because of its importance, and because the lack of price competition is well recognized, the industry is under considerable public pressure not to raise its price any more than could be justified by cost increases. The threat of effective anti-trust action, provoked by ``gouging the public'' through price increases not justified by cost increases, and fears of endangering relations with customers, Congress, the general public and the press, all operate to keep price increases in some relation to cost increases. For the industry of this model, the effect of such public pressures in the past has been to hold the price well below the short-run profit maximizing price (given the wage rate and the level of GNP), and even below the entry limited price (but not below average cost).

For such an industry, it is only ``safe'' to raise its price if such an increase is manifestly ``justified'' by rising costs (due to rising wages, etc.). Thus, if public pressure sets the effective limit to the price that the industry may charge, this pressure is itself a function of the wage rate. In this model, we abstract from all non wage sources of cost changes, so that the ``public limit price'' only rises as the wage rate rises. In such circumstances, it may well be to the advantage of the industry to allow an increase in the basic wage rate.