Showing papers on "Limit price published in 1972"

The Consumer Does Benefit from Feasible Price Stability: A Comment

Abstract: In an article for this journal,' Professor Samuelson criticizes two papers, one showing that consumers could benefit from price instability and the other demonstrating that a competitive firm would prefer stochastically unstable prices to a stable price equal to the mean of the unstable prices.2 The gist of his criticism is that the kind of price instability assumed in these papers is infeasible, and hence the conclusion that price instability is to be preferred must be rejected.3 As the author of one of these papers, I have prepared this comment for two reasons. First, Samuelson provides his own interpretation of my paper, and that interpretation is at variance from what I had intended and written. Second, and more important, he has analyzed a general equilibrium model that is incapable of generating price instability except through the intervention of a deviant nonprofit manipulator. His analysis is an obviously correct one for a world consisting of a closed, stationary economy, but that is not the world for which my modest note was intended.

Perfect Competition, Average Cost Pricing and the Price Equation

Abstract: EMPIRICAL studies of aggregate price equations have shed little light on the choice among alternative theories of price-setting behavior. Specification of the price equation generally makes appeal to both profit maximizing and average cost pricing assumptions.1 Yet little effort has been spent in testing the comparative explanatory power of these alternatives.2 The choice among theories has important implications. The expected pattern of pricewage interactions, questions of bias and identification of the price equation, and use of the price equation for forecasting should all be analyzed with respect to particular hypotheses concerning pricing behavior.3 The need is for more explicit formulation of models and testing of hypotheses. A test of the relative explanatory power of a perfectly competitive model and a general version of average cost pricing is reported in this paper. Two supply and demand models of the final output of the manufacturing sector are specified. These show important differences in the relationship between the price level and its determinants. An empirical test for the United States manufacturing sector is provided.

Optimal price adjustment: Tests of a price equation in U. S. manufacturing

Abstract: The following description and analysis of a firm in atomistic competition is motivated by the need to specify a dynamic equation of price behavior to be tested on U.S. manufacturing time-series data. It will be shown that uncertainty of price information in a market composed of many competing firms leads to a model which is more or less in the Evans tradition of dynamic monopoly theory.3 The key dynamic element is the firm's reaction to customer behavior in an uncertain price situation. Price uncertainty forces newcomers to the market to search for an acceptable price which is less than the marginal utility of the good. Old customers may decide to search after a price increase, if the expected difference in search costs and price is less than the recently experienced price change. The implications of the theory are examined using a phase diagram analysis. Of particular interest for empirical study are the effects of changes in model parameters on the time path of the optimal price control equation. In line with the conclusions of the theoretical model the estimation results seem to suggest that price adjusts to a moving equilibrium path in a variable manner determined by cyclical factors in the economy.