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Market Cycles for a Non-Storable Product Under Adjustment Costs

Author

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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.

Suggested Citation

  • Hennessy, David A. & Lapan, Harvey E., 2004. "Market Cycles for a Non-Storable Product Under Adjustment Costs," Staff General Research Papers Archive 12208, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:12208
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    File URL: http://www2.econ.iastate.edu/papers/p3906-2004-10-23.pdf
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    References listed on IDEAS

    as
    1. David A. Hennessy & Jutta Roosen, 2003. "Cost-Based Model of Seasonal Production, with Application to Milk Policy, A," Center for Agricultural and Rural Development (CARD) Publications 03-wp323, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    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. Jeffrey A. Miron, 1996. "The Economics of Seasonal Cycles," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133237, January.
    4. 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.
    5. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
    6. 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.
    7. Douglas Gale, 1996. "Delay and Cycles," Review of Economic Studies, Oxford University Press, vol. 63(2), pages 169-198.
    8. Kiminori Matsuyama, 1999. "Growing Through Cycles," Econometrica, Econometric Society, vol. 67(2), pages 335-348, March.
    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., 2009. "Harmonic symmetries of imperfect competition on circular city," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 124-146, January.

    More about this item

    Keywords

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

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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