Existence of equilibria when firms follow bounded losses pricing rules
We consider a general equilibrium model of an economy with increasing returns to scale or more general types of non-convexity in production. The firms are instructed to set their prices according to general pricing rules which are supposed to have bounded losses. This includes the case of loss-free pricing rules hence, in particular, profit maximizing and average cost pricing. As for the marginal (cost) pricing rule, the bounded losses assumption for a firm is shown to be equivalent to the ‘star-shapedness' of its production set. This paper reports a general existence result in this model.
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