CRITICISM OF MARRIS MODEL
Marris’s growth-maximisation model has been severely criticised
for its over-simplified assumptions by Koutsoyiannis and Hawkins.
1. Marris assumes a given price structure for the firms. He,
therefore, does not explain how prices of products are determined
in the market. This is a serious weakness of his model.
2. Another defect of this model is that it ignores the problem of
oligopolistic interdependence of firms in non-collusive market.
3. This model also does not analyse interdependence created by
non-price competition.
4. The model assumes that firms can grow continuously by creating
new products. This is unrealistic because no firm can sell anything
to the consumers. After all, consumers have their preferences for
certain brands which also change when new products enter the
market.
5. According to Koutsoyiannis, “Marris’s model is applicable
basically to those firms which produce consumers’ goods. The
model is not appropriate for analysing the behaviour of
manufacturing businesses or traders.”
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6. Marris lumps together advertising and R&D expenses in his
model. This is a serious shortcoming of the model because the
effectiveness of these two variables is not the same in any given
period.
7. Marris assumes that firms have their own R&D department on
which they spend much for creating new products. But, in reality,
most firms do not have such departments. For product diversification, they imitate the inventions of other firms and in case of
patented inventions they pay royalties for using them.
8. The assumption that all major variables such as profits, sales and
costs increase at the same rate is highly unrealistic.
9. It is also doubtful that a firm would continue to grow at a
constant rate, as assumed by Marris. The firm might grow faster
now and slowly later on.
10. It is difficult to arrive at the growth rate which maximises the
market value of the firm’s shares and the rate at which the take-over
is likely to take place.