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Market Cycles for a Non-Storable Product Under Adjustment Costs

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  • Hennessy, David A.
  • Lapan, Harvey E.

Abstract

When adjustment costs are present, cyclical preference and technology heterogeneities in a product’s markets induce cycles in production. We exploit cyclic and dihedral group invariances in an industry’s cost technology to describe these patterns. We show when equilibrium cyclical pricing and production patterns are ordered according to demand patterns. Our approach allows us to identify periods when prices may fall below unit costs, net of adjustment costs. Social welfare preferences over cyclical demand and supply heterogeneities are identified. We study the particulars of cycle dynamics when demand is linear and adjustment costs are quadratic. The analysis is developed for when external trade is impossible and when it is possible.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p3906-2004-10-23.pdf
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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12208.

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Date of creation: 23 Oct 2004
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Handle: RePEc:isu:genres:12208

Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Related research

Keywords: dihedral groups; production patterns; social welfare; external trade; group majorization;

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References

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  1. Andrew B. Abel, 2002. "The effects of a baby boom on stock prices and capital accumulation in the presence of Social Security," Working Papers 03-2, Federal Reserve Bank of Philadelphia.
  2. Jeffrey A. Miron, 1996. "The Economics of Seasonal Cycles," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133237, December.
  3. Bhattacharya, Joydeep & Russell, Steven, 2002. "Two-Period Cycles in a Three-Period Overlapping Generations Model," Staff General Research Papers 10250, Iowa State University, Department of Economics.
  4. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  5. Hennessy, David A. & Roosen, Jutta, 2003. "Cost-Based Model of Seasonal Production, with Application to Milk Policy, A," Staff General Research Papers 10176, Iowa State University, Department of Economics.
  6. Gale, Douglas, 1996. "Delay and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 169-98, April.
  7. David A. Hennessy & Jutta Roosen, 2003. "A Cost-Based Model of Seasonal Production with Application to Milk Policy," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(2), pages 285-312.
  8. Matsuyama, K., 1996. "Growing through cycles," DELTA Working Papers 96-18, DELTA (Ecole normale supérieure).
  9. Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June.
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Cited by:
  1. Hennessy, David A. & Lapan, Harvey E., 2006. "Harmonic Symmetries of Imperfect Competition on Circular City," Staff General Research Papers 12551, Iowa State University, Department of Economics.

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