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Market Cycles for a Non-Storable Product Under Adjustment Costs

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

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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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
Web page: http://www.econ.iastate.edu
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  1. 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.
  2. Andrew B. Abel, 2003. "The Effects of a Baby Boom on Stock Prices and Capital Accumulation in the Presence of Social Security," Econometrica, Econometric Society, vol. 71(2), pages 551-578, March.
  3. Bhattacharya, Joydeep & Russell, Steven, 2003. "Two-period cycles in a three-period overlapping generations model," Journal of Economic Theory, Elsevier, vol. 109(2), pages 378-401, April.
  4. David A. Hennessy & Jutta Roosen, 2003. "Cost-Based Model of Seasonal Production, with Application to Milk Policy, A," Food and Agricultural Policy Research Institute (FAPRI) Publications 03-wp323, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  5. Matsuyama, K., 1996. "Growing through cycles," DELTA Working Papers 96-18, DELTA (Ecole normale supérieure).
  6. Gale, Douglas, 1996. "Delay and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 169-98, April.
  7. Jeffrey A. Miron, 1996. "The Economics of Seasonal Cycles," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133237, June.
  8. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  9. 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.
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