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Equilibrium Fluctuations When Price and Delivery Lag Clear the Market

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  • Dennis W. Carlton

Abstract

To 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.

Suggested Citation

  • Dennis W. Carlton, 1983. "Equilibrium Fluctuations When Price and Delivery Lag Clear the Market," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 562-572, Autumn.
    • Handle: RePEc:rje:bellje:v:14:y:1983:i:autumn:p:562-572
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    Cited by:

    1. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Papers 2011-03, Bar-Ilan University, Department of Economics.
    2. Levy, Daniel, 2007. "Price Rigidity and Flexibility: New Empirical Evidence - Introduction to the Special Issue," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 28(7 (Specia), pages 639-647.
    3. Susanto Basu & John Fernald, 2001. "Why Is Productivity Procyclical? Why Do We Care?," NBER Chapters, in: New Developments in Productivity Analysis, pages 225-302, National Bureau of Economic Research, Inc.
    4. Levy, Daniel & Snir, Avichai, 2013. "Shrinking Goods," MPRA Paper 46040, University Library of Munich, Germany.
    5. Jens-Peter Loy & Christoph Weiss, 2002. "Staggering and synchronisation of prices in a low-inflation environment: Evidence from German food stores," Agribusiness, John Wiley & Sons, Ltd., vol. 18(4), pages 437-457.
    6. David Byrne & Brian K. Kovak & Ryan Michaels, 2013. "Price and Quality Dispersion in an Offshoring Market: Evidence from Semiconductor Production Services," NBER Working Papers 19637, National Bureau of Economic Research, Inc.
    7. Michael Sattinger, 2002. "A Queuing Model of the Market for Access to Trading Partners," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 533-548, May.
    8. Nalewaik, Jeremy & Pinto, Eugénio, 2015. "The response of capital goods shipments to demand over the business cycle," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 62-80.
    9. Basu, Susanto & Fernald, John G. & Shapiro, Matthew D., 2001. "Productivity growth in the 1990s: technology, utilization, or adjustment?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 117-165, December.
    10. Adam Copeland & James A. Kahn, 2012. "Exchange rate pass-through, markups, and inventories," Staff Reports 584, Federal Reserve Bank of New York.
    11. Curtis Eberwein & Ted To, 1998. "Dynamic Price Adjustment Under Imperfect Competition," Industrial Organization 9803002, University Library of Munich, Germany.
    12. Pinelopi K. Goldberg & Rebecca Hellerstein, 2009. "How rigid are producer prices?," Staff Reports 407, Federal Reserve Bank of New York.
    13. Daniel Levy, 2007. "Price rigidity and flexibility: new empirical evidence," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 639-647.
    14. Mark Casson & Nigel Wadeson, 2012. "Internationalisation Theory," Chapters, in: Michael Dietrich & Jackie Krafft (ed.), Handbook on the Economics and Theory of the Firm, chapter 15, Edward Elgar Publishing.
    15. Daniel Levy, 2007. "Price rigidity and flexibility: recent theoretical developments," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 523-530.
    16. Georg Müller & Mark Bergen & Shantanu Dutta & Daniel Levy, 2007. "Non-price rigidity and cost of adjustment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 817-832.
    17. Levy, Daniel, 2007. "Price Rigidity and Flexibility: Recent Theoretical Developments - Introduction to the Special Issue," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 28(6 (Specia), pages 523-530.
    18. Pinelopi K. Goldberg & Rebecca Hellerstein, 2009. "How rigid are producer prices?," Staff Reports 407, Federal Reserve Bank of New York.
    19. repec:pri:cepsud:193goldberg is not listed on IDEAS
    20. Ryan Michaels, 2013. "The Joint Dynamics of Capital and Employment at the Plant Level," 2013 Meeting Papers 1189, Society for Economic Dynamics.
    21. Alan Kackmeister, 2007. "Yesterday's Bad Times Are Today's Good Old Times: Retail Price Changes Are More Frequent Today Than in the 1890s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1987-2020, December.
    22. James Kahn & Adam Copeland, 2012. "Durable Goods Production and Inventory Dynamics: An Application to the Automobile Industry," 2012 Meeting Papers 270, Society for Economic Dynamics.

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