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Showing papers on "Factor price published in 1986"


ReportDOI
TL;DR: This paper examined the behavior of individual buyers' prices for certain products used in manufacturing and found that prices are not rigid down-ward and fixed costs of changing prices at least to some buyers seem trivial.
Abstract: This paper presents evidence on the amount of price rigidity that exists in individual transaction prices Using the Stigler-Kindahi data, I examine the behavior of individual buyers' prices for certain products used in manufacturing My most important findings are: 1The degree of price rigidity in many industries is significant It is not unusual in some industries for prices to individual buyers to remain unchanged for several years 2Even for what appear to be homogeneous commodities, the correlation of price changes across buyers is very low 3There is no evidence that there is an asymmetry in price rigidity In particular, prices are not rigid down-ward 4The fixed costs of changing price at least to some buyers seem trivial There are plenty of instances where small price changes occur 5The level of industry concentration is strongly correlated with rigid prices The more concentrated the industry, the longer is the average spell of price rigidity 6There appears to be a relationship between price rigidity, size of price change, and the length of time a buyer and seller deal with each otherI interpret the findings as evidence that it is erroneous to focus attention on price as the exclusive mechanism to allocate resources Nonprice rationing is not a fiction, it is a reality of business and may be the efficient response to economic uncertainty

622 citations


Book ChapterDOI
TL;DR: In this article, the authors analyze the Nash equilibria of a one-stage game in which the nature of the strategic variables (prices or quantities) is determined endogenously.
Abstract: We analyze the Nash equilibria of a one-stage game in which the nature of the strategic variables (prices or quantities) is determined endogenously. Duopolists producing differentiated products simultaneously choose either a quantity to produce or a price to charge. In the absence of exogenous uncertainty, there exist four types of equilibria with differing levels of output. (price, price), (quantity, quantity), (price, quantity), and (quantity, price). The multiplicity ofequilibria stemsfrom each firm's indifference between settingprice and quantity, given its conjecture about its rival's strategy. But exogenous uncertainty about market demands, which makes firms uncertain about their residual demands, even in equilibrium, gives firms strict preferences between setting price and quantity. As a result, the number of equilibria is reduced. When uncertainty is exogenous, we analyze the effect of the slope of marginal costs, the nature of the demand disturbance, and the curvature of demand on firms' propensities to compete with price or quantity as the strategic variable. These three factors are likely to influence the nature and intensity of oligopolistic competition.

215 citations


Journal ArticleDOI
TL;DR: In this article, the role of the most favored customer pricing policy as a practice facilitating coordination in a dynamic model of price-setting duopoly is examined, and it is shown that at least one firm offers the policy in equilibrium.
Abstract: This article examines the role of the most-favored-customer pricing policy as a practice facilitating coordination in a dynamic model of price-setting duopoly. This policy is a promise by a firm that if it later lowers price, it will rebate to current customers the difference between the price they pay now and the lower future price. By reducing each firm's incentive to reduce price, the policy enables both firms to offer higher prices and to enjoy higher profits. Consequently, at least one firm offers the policy in equilibrium. We illustrate these general results in an example.

205 citations


Journal ArticleDOI
TL;DR: In this paper, the Hicksian hypothesis of induced innovation was applied to the historical data of U.S. and Japanese agricultural development for 1880-1980 and the results were consistent with the hypothesis that different patterns of technical change in the two countries were induced by differences in the levels and the movements in relative factor prices.
Abstract: Because of extreme differences in factor endowments and price ratios among factors between the United States and Japan, both countries have experienced sharply different patterns of factor use and productivity growth in agriculture for the past 100 years of modern economic growth. In this study, the method of testing the Hicksian hypothesis of induced innovation was developed using the two-level CES production function. The model was applied to the historical data of U.S. and Japanese agricultural development for 1880-1980. The results were consistent with the hypothesis that different patterns of technical change in the two countries were induced by differences in the levels and the movements in relative factor prices.

79 citations


ReportDOI
TL;DR: The authors find norms for long-run national price levels, and therefore, by implication, for exchange rates, that are superior to those implied by the absolute or relative versions of purchasing power parity theory.
Abstract: This paper attempts to find norms for long-run national price levels,and therefore, by implication, for exchange rates, that are superior to those implied by the absolute or relative versions of purchasing power parity theory. The structural variables we have found to determine these price levels, real income per capita, the openness of the economy, and the share of tradables in total output, are used to explain price levels in periods since 1960 and to some extent since 1950.The results suggest that there was a movement toward a more "orderly" alignment of price levels, especially in the period before the 1970's. That is,national price levels came to be explained to an increasing degree by our structural variables. The price levels implied by the structural equations appear to come closer to representing long-run equilibrium levels than do those implied by purchasing power parity. The deviations from the structural equations seem to have value inpredicting future changes in price levels or real exchange rates,in conbination with changes in the structural variables. And they also contribute to predicting changes in the balance of trade.

72 citations


Journal ArticleDOI
TL;DR: In this paper, the authors employ the cost dual of a Generalized Leontief production function to test directly for the presence of these three effects for nineteen two-digit manufacturing sectors and find that biased technical change was a key feature of this growth, that it was widespread within American manufacturing and that it accounted for a significant part of the movement of factor shares.
Abstract: Biased technical change, scale economies, and factor substitution were part of U.S. manufacturing's technical response to factor price movements during the period 1850 to 1919. In this article we employ the cost dual of a Generalized Leontief production function to test directly for the presence of these three effects for nineteen two-digit manufacturing sectors. Biased technical change is found in all but one sector; scale economies in all but two; factor substitutability, in all but five. Estimates of scale and bias effects for labor, capital, and materials are presented by sector, and the results are compared with other recent work. ONE of the enduring issues of economic history is the growth of modern manufacturing in the United States between the Civil War and the First World War. In an earlier study we argued that biased technical change was a key feature of this growth, that it was widespread within American manufacturing, and that it accounted for a significant part of the movement of factor shares.' This conclusion is consistent with the modern literature on technical change and its contribution to American economic growth, a literature nurtured by Erwin Rothbarth and H. J. Habakkuk in the labor-scarcity thesis.2 The key to analyzing the rapidity of technical change is the rate of change of relative factor prices. In the last half of the nineteenth and early part of the twentieth centuries American industry faced changes in the relative factor prices which were particularly pronounced and associated with

71 citations



Journal ArticleDOI
TL;DR: In this article, the authors study price rivalry between two firms facing a population of imperfectly informed buyers and show that the competitive process either suffers from cyclical instability or stabilises at that price at which no buyer searches.

35 citations


Journal ArticleDOI
TL;DR: In contrast to conventional, disaggregative testing of the law of one price, the authors adopts an aggregative approach, using a tradable/nontradable level of aggregation, to test equality of the prices of tradables and nontradables domestically and international.

32 citations


Journal ArticleDOI
TL;DR: Under the assumption that the price charged for public medical care is not to determine supply (because general revenue is available), the optimum price is determined taking account not of the cost of production but only of the government's welfare function.

18 citations


Journal ArticleDOI
TL;DR: In this paper, it was shown that when an economy moves from autarky to free trade, payment to a relatively cheap factor may fall, "polarizing" factor prices.

Journal ArticleDOI
TL;DR: In this article, the authors analyze monopolistically competitive markets under incomplete information, facing unanticipated disturbances, and show that the average price is sensitive to cost and insensitive to demand, if the market becomes very competitive and if the price elasticity of individual demand is close to infinity.
Abstract: This paper analyses monopolistically competitive markets under incomplete information, facing unanticipated disturbances. Firms determine their prices before they have information about other firms' prices, and form their expectations about the average price rationally. If the market becomes very competitive in the sense that the price elasticity of individual demand is close to infinity, then the average price is completely insensitive to short-run unanticipated disturbances. In the intermediate case, if (a) cost disturbances are uniform and (b) demand and cost disturbances are correlated, then the average price is sensitive to cost and insensitive to demand.


Journal ArticleDOI
TL;DR: In this article, it is argued that it is rational to judge quality by price only if the consumer is uncertain about product quality, which implies that expectations are price dependent, and that a change in price may cause a revision of expectations and not a shift in the consumer's preferences.
Abstract: It has long been observed that some consumers may view product price as an indicator of product quality. The rationale for choosing price as an indicator of quality appears to be the belief that markets are essentially efficient and that the higher costs associated with higher quality must be reflected by a higher product price. Earlier authors [1;4;5;6;7; 11;14] have taken note of this phenomenon and have concluded that consumer preferences must be dependent on product price in this case. It is argued in this paper that it is rational to judge quality by price only if the consumer is uncertain about product quality. This implies that expectations are price dependent. Since the consumer rarely knows the exact quality of any product prior to its purchase, the use of quality indicators may be more prevalent than traditional theory would imply. If preferences or expectations are dependent on price, the traditional properties of demand equations may not hold. For example, demand may not be free of money illusion [5, 497]. Pollak' has observed that "... judging the quality of a product by its price is a rational strategy for an uncertain consumer.. ." [7, 64]. He then proceeds to model price dependent preference behavior under certainty. In a deterministic environment, quality is known with certainty. If quality is known with certainty, then it is not rational for the consumer to use indirect quality indicators such as the price of the product. The principal thesis of this paper is that ex ante uncertainty about product quality can lead to price dependent subjective expectations rather than price dependent preferences. Hence, a change in price may cause a revision of expectations and not a shift in the consumer's preferences. In section II, I present a model of subjective expectations where product price is a prior indicator of product quality. A specific model of the revision of expectations is set forth.2 Two models of consumer behavior with uncertain product quality are contained in section III. In the first model, we assume that there is no demand for quality per se and that

Journal ArticleDOI
TL;DR: In this paper, the authors argue that managers who merely set price levels rather than explicit price structures for their products deprive themselves of a valuable strategic tool, namely price levels, which are the actual dollar prices that are set within the structure.
Abstract: All pricing strategies are composed of two elements: price structures and price levels. Price levels are the actual dollar prices that are set within the structure. But managers who merely set price levels rather than explicit price structures for their products deprive themselves of a valuable strategic tool.

Posted Content
TL;DR: In this paper, the authors look at some empiricel evidence of and theoretical rationale for price inflexibility in the face of a decrease in short run demand in the Western-type industrialized economies.
Abstract: In this paper we look at some empiricel evidence of and theoretical rationale for price inflexibility in the face of a decrease in short run demand in the Western-type industrialized economies. The empirical evidence suggests that price sluggishness is pervasive but varies across markets, industries and countries. There are different reasons for the price inertia. The response of firms to uncertainty, the cost of adjusting prices, the contents of the long- term contracts in the goods and input markets, the extent and variability of excess demand may differ among firms and industries. The structure of the industry, the degree of heterogeneity of the products in a market, the network of input-output relationship among industries, the nature of international competition, the process of forming expectations about the future, shocks from monetary and fiscal policies and input price shocks, all interact and create the ever changing environment of the firms. In these changing circumstances there are incentives for prices to be sluggish and thus arises the dilemma of achieving price stability at a high cost of unemployment. The ability of governments to achieve stable prices is probably endogenous in the system and may depend on a threshold rate of inflation. A number of policy options are discussed to address the issue of price inertia which would reduce the adjustment burden of anti-inflationary policies.

Journal ArticleDOI
01 Mar 1986-Society


Posted Content
TL;DR: In this article, the problem of finding an equilibrium price vector in an economy possessing a block-diagonal demand-supply structure is addressed, where the successive price adaptions are related to the sign pattern of the excess demand function and their economic interpretation is quite attractive.
Abstract: In thís paper we deal with the problem of fínding an equilibrium price vector ín an economy possessing a block-diagonal demand~supply s[ructure. The most appealing example of such an economy concerns an in[ernational trade model ín which each country has a group of domestic goods traded only withín that country, while a group of common goods is traded among all countries. An equilibrium price vector is then defined as a price vector at which for all goods demand equals supply. Here we present a price adjustment process that can start from an arbitrary starting vector and always reaches such an equilibrium price vector. The successive price adaptions are related to the sign pattern of the excess demand function and their economic interpretation is quite attractive. For example, prices corresponding to goods in excess demand (supply) are increased (decreased). The process presented here ts based on processes developed for solving the so-called Non-Linear Complementarity Problem (NLCP) on a simplotope S. Some adaptions are needed because our problem cannot be stated as a pure NLCP on S. In fact one complementarity constraint is missing.

Dissertation
01 Sep 1986
TL;DR: The author argues that the abandonment of the macroeconomic approach to the analysis of price inflation and its replacement by the inter-industrial approach is the first step for serious analysis of that structural phenomenon.
Abstract: This thesis seeks to analyse price inflation under oligopoly capitalism. Its central argument is that under oligopoly capitalism, price inflation is a structural phenomenon. For a greater understanding of that phenomenon, the adoption of the inter-industrial approach for its analysis seems essential. According to this approach, price inflation can be initiated in a single industry or in an industry group. The initiating factor may be an increase in the mark-up, an increase in the money wage rate or an increase in the foreign currency price of an imported input. It can also be initiated by devaluation. The input-output matrix, the core of the economic system, is the key to the transmission of inflationary impulses (in the form of higher unit cost) from one industry to another. Real wage resistance, rigid mark-up resistance, and rigid foreign resistance do no more than perpetuate or worsen the inflationary experience. The inflationary process itself has a dual role to play. It acts as a mechanism for shifting income distribution in favour of one section of the society against another and as a mechanism for changing the price structure. The author argues that the abandonment of the macroeconomic approach to the analysis of price inflation and its replacement by the inter-industrial approach is the first step for serious analysis of that structural phenomenon.

Journal ArticleDOI
TL;DR: In this paper, the authors developed a method based on input-output theory and is called "Price Analysis", which takes into account the relationship between changes in input prices and in unit costs of inputs.
Abstract: At the Netherlands Central. Bureau of Statistics a method has been developed which provides insight into the relationships between developments in input costs and output prices. This method is based on input-output theory and is called "Price Analysis". Starting from 1985, the Netherlands Central Bureau of Statistics is to issue an annual publication on this price analysis for the Dutch economy. The method takes into account the relationship between changes in input prices and in unit costs of inputs. Applications related to consumer price changes elucidate the transmission of price changes through the economy and the treatment of price and unit cost effects. Both aspects can be illustrated by an example relating to energy. The scope can be widened from just the energy branches to an analysis of the contributions of all branches of industry to consumer price changes. Finally, consumer price changes can be analysed in an alternative way by means of contributions of primary inputs, like imports, wages, etc.

Journal ArticleDOI
TL;DR: In this paper, the impact of product characteristics in choice of technology in commodity processing has been investigated and the authors have shown that product characteristics are specially important in the earlier stages of manufacturing.
Abstract: Economic appraisals have often relied heavily on the factor use and factor price characteristics of process. In this article we treat impact of product characteristics in choice of technology. Product characteristics are specially important in the earlier stages of manufacturing, namely, commodity processing. The study elaborates also on circumstances which lead to the emergence of different and fluctuating relationships between product prices in different countries, respectively, developing and developed, and their implication for the choice of technology in these countries.

Posted Content
01 Jan 1986
TL;DR: In this article, the authors discuss the problems connected with the capitallzation of agriculture and how it changes with requirements for economic growth, and present a solution to these problems.
Abstract: The interest in quantifying available capital and how it changes with requirements for economic growth. The modernization process in agriculture entailed the substitution of labor-intensive techniques, animal power and high reemployment levels by capital-intensive methods mechanical power and an increasing use of industrial inputs. The problems connected with the capitallzation of agriculture have therefore become very Important.

Journal ArticleDOI
TL;DR: In this paper, the authors examined how cyclical fluctuations and a growth trend in demand affect the firm's price-adjustment policy and profits in an inflationary environment, and the main results were that the more cyclical demand is, the higher is the initial real price and the lower is the certainty-equivalent terminal real price within a period with constant nominal price.

Journal ArticleDOI
TL;DR: In this article, the authors examined Chen's [1980] model of asset valuation under uncertain inflation in order to derive a static and comparative static theory of production by a competitive firm.
Abstract: This paper examines Chen's [1980] model of asset valuation under uncertain inflation in order to derive a static and comparative static theory of production by a competitive firm. Given the value maximizing and the price taking assumptions, the firm behaves as a profit-maximizer. The sole effect of uncertain inflation is to distort the price structure. that is, the firm adjusts the expected price of an input or output to reflect the systematic risk of that price. Because a change in circumstances can affect the systematic risk of a given price, assessing the effects of a specific policy or event solely in terms of its effect on expected price can be misleading. Parametric variations affect the structure of certainty equivalent prices. Therefore, the comparative static derivatives of the value maximizing firm emerge as extensions of the comparative static derivatives of the profit maximizing firm under certainty. Many of these comparative static derivatives are of determinant sign. The effects of changes in market uncertainty and in inflation uncertainty, while they can be characterized mathematically, cannot be signed in the general case. Cross-sectional studies indicate wide variation in the effects of inflation, so that the preceding theoretical results appear plausible. Finally, in view of the wealth of static and comparative static results which can be derived from Chen's model, that model provides a convenient benchmark against which to judge other models. Precisely because of its simple nature, Chen's model is ideal for establishing limits of analysis.

01 Mar 1986
TL;DR: In this article, the authors evaluate net social costs of the rubber production policy in Brazil considering both wild and planted rubber and conclude that even though expanding cultivation of natural rubber to non-traditional areas may be justified on the basis of private production costs, the increased rubber production will be obtained at higher costs for the society as a whole.
Abstract: In Brazil, the rubber policy to expand production has been based principally on price increase and subsidized credit. Social costs and benefits of this policy have not yet been studied. The purpose of this paper is to evaluate net social costs of the rubber production policy in Brazil considering both wild and planted rubber. The modern theory of welfare economics provides the basic conceptual framework used. The social costs of increased production were calculated using the area below the supply curve with factor prices corrected for differences between market and social prices. Social benefits wereconsidered equal to the reduction in natural rubber imports evaluated at social exchange rate. The results indicated that social costs of native rubber production is about 23% of the national consumption. For planted rubber production, social costs are 31,5%. Among the various alternatives studied, there are situations where social costs riseto 100%. According to the regional disaggregationused, the wild rubber production in Amazonia showed the lowest social costs and planted rubber production in the Amazon Region has lower social costs than other production areas of the country. One main conclusion of the study is that even though expanding cultivation of natural rubber to non-traditional areas may be justified on the basis of private production costs, the increased rubber production will be obtained at higher costs for the society as a whole.