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The determination of the price of capital goods: A differential game approach

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  • Marco Guerrazzi
  • Giuseppe Candido

Abstract

In this paper, we address the determinants of the price of newly installed productive capacity. Specifically, we develop a differential game in which a competitive producer of consumption goods deals with a seller of capital goods endowed with market power. From a theoretical perspective, we demonstrate that an open‐loop Stackelberg equilibrium requires the producer of consumption goods to be more impatient than the seller of capital goods. Thereafter, we show that our theoretical setting can replicate the countercyclical pattern of the relative price of capital goods as well as its negative relationship with the investment–output ratio.

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  • Marco Guerrazzi & Giuseppe Candido, 2025. "The determination of the price of capital goods: A differential game approach," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(1), pages 222-234, January.
    • Handle: RePEc:wly:mgtdec:v:46:y:2025:i:1:p:222-234
    DOI: 10.1002/mde.4370
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    Cited by:

    1. Guerrazzi, Marco, 2024. "Wage Bargaining and Capital Accumulation: A Dynamic Version of the Monopoly Union Model," GLO Discussion Paper Series 1515, Global Labor Organization (GLO).

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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