This paper presents a model of equilibrium price dispersion in which buyers do not search. However they are able to store the non-durable commodity for future use. Such behaviour implies sellers' demand curves are endogenously generated by the observed price distribution. Equilibrium is shown to exist. Although more than one price may be charged in equilibrium, the monopoly price will occur with positive probability. Comparative static results are derived with a linear version of the model, some of which are "perverse".
The efficiency of market information for planning resource allocation in "real time" is explored. In each period resources are allocated as planning for the next period proceeds. Full optimality is not possible, even when maximum information is exchanged between firms and resource allocators, as the technologies of the firms are changing. The major result shows that market-type information such as demands and especially demand forecasts is as good as full technological information to exchange.
This paper compares the durability of goods produced in competitive and monopolistic markets. Durability is chosen to minimize the cost of providing a given present value of flow of services over the life of the durable. As pointed out by Swan, under constant returns to scale, the cost-minimizing durability is independent of the level of output; thus competitive firms will choose the same durability as a monopolist, even though they would produce different levels of output. In this paper, we relax the assumption of constant returns to scale and derive more general conditions under which optimal durability is independent of the level of output. We also demonstrate that with a particular specification of external diseconomies of scale, the monopolist will produce goods with greater durability than would be produced by competitive firms. 1.
This paper considers the short run adjustment of money holdings towards their desired levels. A rationale for short run money holdings is given, which allows for uncertainty in cash flows, and it is shown how the adjustment to desired money balances will occur following a change in some of the economic variables. The model generates a particular form for the short run demand for money function, which is shown to be econometrically superior to the standard ad hoc formulation. The chief theoretical novelty is the derivation of the appropriate transient probability density of money holdings.
This paper investigates, in the context of a market for a homogeneous commodity, the asymptotic properties of Cournot equilibria with free entry when the size of the market increases indefinitely. The analysis focuses on the case where the average cost function is always decreasing and the marginal cost function is non-decreasing for all sufficiently large outputs.
This paper shows that firms endowed with monopoly power can utilize an optional service contract form of guarantee as an instrument for effecting a surplus extracting two-part tariff. The monopolist finds it optimal to produce, guarantee and replace defective units, even if a zero defect rate could be achieved at no additional production cost. It is also shown that the price per unit is greater than the “effective” marginal cost; it may even be higher than the pure monopoly price. Moreover the monopolist is unable to extract all of the consumers surplus. Thus, that optional service contract policy can provide an effective yet defensible form of price discrimination as an alternative to possible illegal tie-ins, quantity discounts and simple two-part tariffs.
This article uses a dual approach to investigate the properties of an n-asset portfolio model. The indirect expected utility and expenditure functions are used to provide an extremely simple derivation of Slutsky equations by obtaining results similar to Roy's Identity and Shephard's Lemma. The substitutability/complementarity relations among assets are investigated, and a number of empirically testable implications are deduced from the properties of the expenditure function.
It is shown that when resources are privately owned, the institution of voting is irrelevant to the choice of non-exclusive public goods: the total bundle of such goods produced by Society is the same whether or not minority coalitions are permitted to produce them. This is in sharp contrast to the cases of redistribution and of exclusive public goods, where public decisions depend strongly on the vote. The analytic tool used is the Harsanyi-Shapley non-transferable utility value.
This paper examines the decision to enter into a sector dominated by a monopoly if demand is random at entry time. Given a two-period world, the monopolist enters initially and enjoys an uncontested monopoly for one period, while the entrant may enter and compete during the second period. Demand is random one period earlier and independently distributed in both periods and entry corresponds to an irreversible capacity choice, made under certain demand. All other production decisions take place after demand has been revealed. Risk-neutrality is assumed on both sides. If entry occurs then there is a Cournot duopoly in the second period. It is shown that concurrently with this Cournot production game, there is a separate Stackelberg-type game with capacities as decision variables. Entry-deterrence conditions are derived under general demand and cost assumptions. It is shown that demand uncertainty changes several of the results of similar certain demand models.
This paper argues that if the disincentive effects of unemployment insurance result from higher reservation wages, they may be eliminated by financing benefits with a progressive income tax. The result is obtained within an equilibrium model with stochastic job matchings. An optimal tax formula is derived for a linear income tax, and shown to imply that the average tax rate should increase faster with income the higher the level of UI benefits relative to other government expenditure. In some cases optimal financing may require the subsidization of low-wage jobs.