33.3 – Business Models, Plural: Aims and Methods of the Megacorp
33.3 – Business Models, Plural: Aims and Methods of the Megacorp
Learning Objectives
By the end of this section, you will be able to:
- Identify different general methods by which businesses can pursue profits
- Analyze the nature and significance of advertising
- Apply heterodox concepts to the analysis of the pharmaceutical industry
As a professor of mine, James Sturgeon, is fond of saying, there’s more than one way to make money: You can…
- Steal
- Extort
- Accept a bribe
- Speculate on the financial or real estate markets
- Inherit
- Con
- Or, perhaps failing all of the above, you could earn it
For our purposes here, this can be interpreted as a rather cheeky way of saying that different businesses have different business models—that is, different ways of making money in a market (or several markets). And, while they might all be treated with the utmost abstraction as combining inputs to produce outputs of greater value, heterodox economists are inclined to believe that not every way of making money is the same.
Breaking down all of the means by which modern businesses make money is far beyond the scope of this chapter. Instead, we’ll borrow from Karl Marx’s extensive work on how capitalist economies function to create a simplified picture, Figure 1, of what a business enterprise does. And from there, we’ll look to institutional economics to understand qualitative differences in how businesses generate their earnings.
In Figure 1, M represents an amount of money and C represents a commodity (for instance the lumber and other building materials a construction company may use to build a house). P represents the production process that converts the commodity C (building materials) into some other commodity C’ (a house) to be sold for some amount of money M’. This process can be treated as a shorthand depiction of what any business does, with the requirement that if the business is to remain in business M’ must be greater than M. It may be useful here to take a moment to review the chapter “Cost Assumptions for Profit Maximizing Firms,” specifically the definitions of firm and production therein. How does Figure 1 differ?
The difference may not be obvious, but it is important. In the neoclassical tradition in economics—indeed, in the classical tradition which Marx was critiquing—production by businesses is treated as a C→ C’ process. That is, all business activity is part of converting commodity inputs into commodity outputs which are of greater value, ultimately, to consumers. Clearly, Figure 1 is more than that: it treats money and commodities as distinct things. This allows us to look at the step-by-step process by which money is converted into commodities, production creates new commodities, and money is created by sale of those new commodities. The whole process of turning money into commodity inputs and ultimately selling commodity outputs for money we’ll call monetary production. The full implications of these distinctions for Marxian (or