TY - GEN
T1 - Efficiency and marginal cost pricing in dynamic competitive markets with friction
AU - Cho, In Koo
AU - Meyn, Sean
PY - 2007
Y1 - 2007
N2 - This paper examines market models with supply friction. We examine a competitive equilibrium model, and a monopolistic model in which a single firm determines the market price. The following conclusions are obtained: (i) If friction is present, no matter how small, then the market prices fluctuate between zero and the "choke-up" price, without any tendency to converge to the marginal production cost, exhibiting considerable volatility. This conclusion holds for both the competitive equilibrium market model, and the monopolistic market model. (ii) The long-run average price in the competitive model is always greater than the marginal cost, but less than the long-run average cost in the monopolistic model. (iii) In the competitive model the consumer obtains social surplus, while in the monopolistic model the supplier extracts the entire surplus from the market.
AB - This paper examines market models with supply friction. We examine a competitive equilibrium model, and a monopolistic model in which a single firm determines the market price. The following conclusions are obtained: (i) If friction is present, no matter how small, then the market prices fluctuate between zero and the "choke-up" price, without any tendency to converge to the marginal production cost, exhibiting considerable volatility. This conclusion holds for both the competitive equilibrium market model, and the monopolistic market model. (ii) The long-run average price in the competitive model is always greater than the marginal cost, but less than the long-run average cost in the monopolistic model. (iii) In the competitive model the consumer obtains social surplus, while in the monopolistic model the supplier extracts the entire surplus from the market.
KW - Dynamic economic equilibrium models
KW - Dynamic newsboy models
KW - First welfare theorem
KW - Monopolistic economic markets
KW - Supply friction
UR - http://www.scopus.com/inward/record.url?scp=62749158350&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=62749158350&partnerID=8YFLogxK
U2 - 10.1109/CDC.2007.4434521
DO - 10.1109/CDC.2007.4434521
M3 - Conference contribution
AN - SCOPUS:62749158350
SN - 1424414989
SN - 9781424414987
T3 - Proceedings of the IEEE Conference on Decision and Control
SP - 771
EP - 778
BT - Proceedings of the 46th IEEE Conference on Decision and Control 2007, CDC
PB - Institute of Electrical and Electronics Engineers Inc.
T2 - 46th IEEE Conference on Decision and Control 2007, CDC
Y2 - 12 December 2007 through 14 December 2007
ER -