Showing papers on "Limit price published in 1977"

THE DEMAND FOR RISKY ASSETS: Some Extensions

Abstract: Publisher Summary This chapter discusses some extensions on the demand for risky assets. The research on capital asset pricing has until very recently been devoted almost exclusively to the interrelationships of the risk premiums among different risky assets rather than to the determinants of the market price of risk. Such research has also generally relied on theoretical preconceptions to determine the appropriate utility functions of individual investors upon which both the market price of risk and the pricing of individual risky assets depend. The chapter discusses the highlights of the theoretical and empirical analysis and their conclusions. Then, the same analytical framework is used to obtain new results on the effect of inflation on the market price of risk. It turns out that by using nominal values for returns, the market price of risk under inflation is increased by positive covariance between the rate of inflation and the market rate of return, and decreased by negative covariance. However, statistically as the actual covariance has been very small since the latter part of the 19th century, at least in the USA, the measured market price of risk is not affected appreciably by the adjustment for inflation.

Entry, Capacity, Investment and Oligopolistic Pricing

Abstract: The paper argues that entry is deterred in an industry when existing firms have enough capacity to make a new entrant unprofitable. This capacity need not be fully utilized in the absence of entry. This can result in larger costs than are necessary, given output levels. It also results in higher prices and lower levels of output than those implied by various forms of the limit price model. Capacity and other forms of investment are effective entry deterring variables, partly because they are irreversible and represent preemptive commitments to the industry.

On the Theory of the Competitive Firm under Price Uncertainty: Note

Abstract: Sandmo analyzed the effects of change in the expected value and uncertainty of the price on the optimal output of the competitive firm, which were written as ax/aO and ax/aO in his article, under the assumptions mentioned above. As a result of his analysis, he asserted that while the sign of ax/aO can be clearly judged to be positive, the sign of ax/ay is ambiguous in general. The purpose of this note is to show that investigating the sign of ax/ay under the same assumptions and analytic apparatus as Sandmo's, we can decide the sign of ax/a-y, manifestly in opposition to his assertions.

Energy Substitution in U.S. Manufacturing

Abstract: Industrial energy demand is estimated for each Standard Industrial Classification (SIC) two-digit manufacturing industry using flexible cost functions to derive the systems of demand equations. Industries are found to vary significantly in the characteristics of their energy demand. The price and quantity consumed of electricity, fuel oil, natural gas, and coal are included in the model. Electricity demand is found to be the least responsive and fuel oil demand the most responsive to price. The results show a significant cross price as well as own price elasticity for all types of energy. Policy considerations should keep in mind that short-run responses of demand to price will be smaller than long-run effects. The effect of price changes on fuels used for power generation will also be reflected in the demand for oil, natural gas, and coal. 19 references. (DCK)

The Impact of Trade Restrictions on Price Stability in the World Wheat Market

Abstract: A thirteen-region quadratic programming model of world wheat trade is utilized to simulate the effects of unanticipated quantity changes on prices in the world wheat market under different degrees of trade restriction. Three scenarios characterized by different numbers of regions that permit price signals from international markets to be reflected into their domestic markets are specified. As the number of countries whose wheat trade is price responsive increases in the simulations, the percentage change in world price is smaller in response to a shock such as U.S. export controls or an unanticipated change in Soviet imports.

Nonmarketable Assets and the Determinants of the Market Price of Risk

Abstract: T he original capital asset pricing model (hereafter CAPM) developed by Sharpe (1964), Lintner (1965) and Mossin (1966) was advanced to explain the return differential between risky assets and a risk-free asset under conditions of uncertainty. The model demonstrates that in equilibrium the return differential on a risky asset is determined by two factors: the market price of (unit) risk (hereafter MPR) which is common to all risky assets, and a risk factor unique to each asset. The equilibrium return differential is

Intertemporal determination of the market price of risk

Abstract: THE SINGLE-PERIOD capital asset pricing model (hereafter CAPM), was advanced to explain the return differential on a risky asset. This model has received much theoretical and empirical attention in recent years. The original model demonstrates that the equilibrium return differential on a risky asset is determined by two factors: the market price of (unit) risk (MPR) which is a factor common to all risky assets; and the risk factor which is unique to each asset; that is

Dynamic Limit Pricing in a Mature Market

Abstract: This paper examines the optimal pricing strategy for a group of firms which is confronted by a potential entrant into its market. It is assumed that (i) the existing firms act collusively to maximize profits over some finite horizon, (ii) the potential entrant also maximizes profits over the same horizon and (iii) the market is mature in the sense that only one additional firm can enter the market without significantly decreasing market efficiency. These three assumptions allow for the determination of an equilibrium limit price which would exclude any potential entrant.

Limit Pricing Theory as a Basis for Anti-Merger Policy:

Abstract: Should conglomerate mergers be forestalled on the basis of limit pricing theory?

European demand for frozen concentrated orange juice

Abstract: Imports of frozen concentrated orange juice into the European market has continued to increase with both Brazil and the United States being highly competitive suppliers. Efforts to increase market shares within the EEC has led to a number of structural adjustments in these exporting countries. Brazil subsidizes its exports of concentrate through tax incentives. In contrast, the U.S. and primarily Florida has developed a complex pricing system within the market place that facilitates price discrimination between the U.S. domestic and export markets. This system theoretically provides a method for the U.S. to remain competitive in the world market while still maintaining a price premium in the domestic market (Ward, 1976a: 133). U.S. concentrate is exported through an oligopolistic market structure where price adjustments are apparent to all processors. Theoretically, one processor could cut his export price and increase his share in foreign markets. If the foreign demand were elastic and the domestic inelastic, then total returns could be increased to that processor who exports. The remaining processors could simultaneously share in any gains realized in the domestic market due to reduction in domestic supplies without selling any of their product at the reduced export price. This potential for unbalanced gains to all processors has prevented voluntary price discounting within the oligopolistic structure. Yet, the U.S. domestic price is consistently at a premium

Agricultural price policy and supply response : a review of evidence and an interpretation for policy

Abstract: Since agricultural policy has been given greater priority, this paper represents an attempt to put together the empirical evidence on supply response to price irrespective of whether that price refers to outputs or inputs. If farmers are responsive to price, then agricultural development can be accomplished through relatively decentralized changes in market conditions and incentives. On the other hand, if supply is not price responsive, agriculture will not respond readily to decentralized incentives, and government will have to change the underlying technological or social conditions under which crops are produced. The paper provides a review of supply response to government stimulation in some developing countries. It discusses elasticity elements of individual crops as well as aggregate agricultural production where available. A brief review of the methodology used is also included, since estimates of price elasticity appear to be contingent significantly in the particular model formulation used for estimation. The impact on supply response from non-price variables is tentatively assessed, as is the impact on other factors such as the demand for labor, consumption, land, etc. generated from the variation in price.

Barriers to Entry, Product Differentiation and Price Elasticity of Market Demand

Abstract: Although concentration has been accorded an important (and probably excessive) role in industrial-organisation studies, there are other aspects of market structure which must be given adequate attention as explanatory variables for industry conduct and performance. We shall now examine barriers to entry, product differentiation and the price elasticity of market demand.

Economically Efficient and Politically Sustainable Economic Contraction

Abstract: If the 1960s were known as the era of economic growth, it is likely that the 1970s and 1980s will be known as the era of economic contraction. Major universities are already facing this problem and the fiscal crisis of our cities is forcing more and more people to come to grips with it.