The purpose of this research is to compare numerical results for a hypothetical numerical model of a cement industry facing demand fluctuations, high versus low, with alternate technologies, high fixed cost versus low fixed cost, using marginal cost pricing versus John M. Clark's workable competition pricing, using marginal cost pricing versus John M. Clark's workable competition pricing. The article is an economics thought experiment that is only carried out in the mind. The article presents a detailed numerical model of a basic industry, cement manufacturing, with a large number of sellers, cement factories, and large numbers of buyers, the construction industry, all of whom work independently and are fully aware of supply and demand conditions. The model's cement plants have linear total cost functions and absolute capacity constraints. The article contrasts two technologies: 1) old plants with low fixed costs but high marginal costs, and 2) new plants with high fixed costs but low marginal costs. This study argues in favour of John M. Clark's (1884-1963) practicable competition theory, which is opposed to marginal cost competition theory. The study investigates the likely equilibrium conditions under two pricing systems: A) short-run marginal cost pricing and B) John M. Clark's practical competition concept. Workable competition raises prices above marginal costs in the off-peak period, but lowers prices in the peak period. The study assumes a 6/7 off period and 1/7 peak period frequency. Workable competition pricing, according to the paper, increases consumer surplus over time under the model's assumptions. Under the model's assumptions, the study claims that gains in consumer surplus from workable competition pricing in high-demand periods, though infrequent (1/7), will outweigh losses in consumer surplus from workable competition pricing in low-demand periods, which are more frequent (6/7).
Author(S) Details
Gerald Aranoff
Ariel University, Ariel 40700 Israel.
View Book:- https://stm.bookpi.org/NIEBM-V7/article/view/6393
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