Equilibrium Fluctuations When Price and Delivery Lag Clear the Market
AbstractTo say that the price of some good is inflexible over time has little meaning if the "good" is changing over time. In this article, I concentrate on delivery lags as the only dimension other than price that varies. It is shown how one can predict the relative importance of price and delivery lag fluctuations as equilibrating mechanisms. These fluctuations are related to underlying supply and demand elasticities, and some surprising results are derived. For example, the importance of price fluctuations increases as the absolute value of the price elasticity increases. The surprising results underscore the complexity of predicting price behavior when the characteristics of the good are endogenous. Relatively inflexible prices combined with relatively flexible delivery lags may be the predicted market-clearing response for many industries to fluctuations in supply and demand conditions.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal Bell Journal of Economics.
Volume (Year): 14 (1983)
Issue (Month): 2 (Autumn)
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Web page: http://www.rje.org
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