Stable and volatile prices: An explanation by dynamic demand. (English) Zbl 0624.90008
Optimal control theory and economic analysis 2, 2nd Workshop, Vienna/Austria 1984, 263-277 (1985).
[For the entire collection see Zbl 0616.00006.]
Many papers concerned with marketing problems of a non-competitive producer utilize static demand schedules. This paper introduces a dynamic relation to investigate the robustness and approximation of the conventionally applied assumption of static demand. In particular, it will be shown, that the stationary monopoly price, if existing, exceeds the one implied from the well known equation: marginal revenue \(=\) marginal costs. However, the proposition of stable monopoly prices depends crucially on the second derivative of demand adjustment to current prices, and may be in many cases ‘zig zag’. Therefore, price volatility can be explained by a certain class of dynamic consumer demand.
Many papers concerned with marketing problems of a non-competitive producer utilize static demand schedules. This paper introduces a dynamic relation to investigate the robustness and approximation of the conventionally applied assumption of static demand. In particular, it will be shown, that the stationary monopoly price, if existing, exceeds the one implied from the well known equation: marginal revenue \(=\) marginal costs. However, the proposition of stable monopoly prices depends crucially on the second derivative of demand adjustment to current prices, and may be in many cases ‘zig zag’. Therefore, price volatility can be explained by a certain class of dynamic consumer demand.
