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Storable good market with intertemporal cost variations

Author

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  • Antoniou, Fabio
  • Fiocco, Raffaele

Abstract

In a storable good market, we investigate a firm’s pricing policy and the welfare effects associated with the firm’s ability to commit to future prices in the presence of time-varying production costs. We show that, if costs are expected to increase, the firm’s lack of commitment leads to lower prices than full commitment when consumer storage costs are relatively small and demand is not too convex. This enhances consumer surplus and, under certain circumstances, total welfare. For intermediate consumer storage costs, the firm’s full commitment generally benefits consumers and, a fortiori, the whole economy. Our analysis provides potentially significant empirical and policy implications, especially regarding the patterns of cost pass-through rates.

Suggested Citation

  • Antoniou, Fabio & Fiocco, Raffaele, 2020. "Storable good market with intertemporal cost variations," MPRA Paper 97948, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:97948
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    File URL: https://mpra.ub.uni-muenchen.de/97948/1/MPRA_paper_97948.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    commitment; consumer storage; cost variations; pass-through; storable goods.;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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