Showing papers on "Limit price published in 1968"

Price and Non-Price Competition

Abstract: When a uniform price is imposed upon, or agreed to by, an industry, some or all of the other terms of sale are left unregulated. The setting of taximeter rates still allows competition in the quality of the automobile. The fixing of commission rates by the New York Stock Exchange still allows brokerage houses to compete in services such as providing investment information. If additional firms may enter such a price-regulated field at no cost disadvantage, profits resulting from the price regulation will be eliminated in long-run equilibrium. But in the absence of free entry-and both the medallions required of taxis and the seats of New York Stock Exchange members are fixed in number-the question arises: Will any monopoly profit achieved by suppressing price competition be eliminated by nonprice competition? We may emphasize that a symmetrical question arises if the firms are required to sell the same product (that is, have the same non-price variable) but are allowed to compete freely in prices. For example, let every seller of gasoline provide the identical product. Will free price competition eliminate any monopoly profits arising from agreement not to compete in the quality of gasoline? Economists generally attribute much more efficacy to price than to non-price competition without giving any clear explanation of the asymmetry of the two kinds of competition. Let us take advertising as the prototype of non-price variables. A previously competitive industry may form a cartel and (1) fix advertising jointly and allow competition in price or (2) fix price jointly and allow competition in advertising. We examine the two cases in turn. Let each firm be operating, under competition, at output Q0 and price P0 (Fig. 1). Upon colluding on advertising, marginal costs-which include the costs of advertising-are reduced at every output for each firm.1 The 1 Economists who find it uncomfortable to discuss advertising in a competitive industry can substitute another non-price variable (such as durability of product, investment advice, or warranties of free repairs) with only terminological effects.

Price‐quality relationships in a durable asset: estimation of a constant quality price index for new farm tractors, 1948–1965*, †

Abstract: Because of the many uses of price indices it is important that they be corrected for quality change. This paper presents a regression approach to the problem of extracting the influences of quality change on price and a price index for new farm tractors is calculated which allows for the considerable, post-war, quality improvements in the input. The results indicate that whilst the average price of tractors has risen rapidly over the post-war period, the true (constant quality) price has shown only a small increase. Some implications of these results are put forward—particularly with regard to the measurement of gross investment and capital stock, and to the importance of input quality change in explaining increasing agricultural productivity over time. Finally, firm level decision making leads to the observed changes over time in the quality demanded of an input: some consideration is given to the place of factor quality selection in firm theory.

Value and price

Abstract: Consider the physical input-output table of an industrial economy without foreign trade. If competition prevails in the long-period sense that all markets are equally easy to enter, so that a uniform rate of profit rules on all capital invested, then corresponding to the ruling rate of profit there is a determinate set of relative prices for all commodities and means of production, and a level of prices in terms of any numeraire. The cost of labour in terms of own product to each employer is such that the surplus per man that he extracts is just sufficient to yield a profit at the ruling rate on the value of capital per man that he operates. Thus &dquo; labour commanded &dquo; by a unit of any commodity is higher the greater the capital to labour ratio involved in producing it. (The real wage from the point

Commentary: On the marginal cost pricing of municipal water

Abstract: It has been maintained that municipal water supply should be priced so that marginal cost equals price. However, there are likely to be ‘third party’ benefits from some components of municipal water use, primarily from the use of water for landscaping and gardening. Because gardening affects the quality of the urban environment, social benefits may exceed private benefits, and marginal cost pricing may result in a price that exceeds a socially optimal price. The magnitude of divergence of the marginal cost price from the optimal price will depend primarily upon the size of the ‘third party’ benefits.