Efficiency and marginal cost pricing in dynamic competitive markets with friction

@article{Cho2007EfficiencyAM,
  title={Efficiency and marginal cost pricing in dynamic competitive markets with friction},
  author={In-Koo Cho and Sean P. Meyn},
  journal={2007 46th IEEE Conference on Decision and Control},
  year={2007},
  pages={771-778}
}
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… CONTINUE READING
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