Labour Hoarding, Price Rigidity and the Theory of Imperfect Competition under Uncertain Demand

Eric Toulemonde

Scandinavian Journal of Economics, 1999, vol. 101, issue 3, 477-487

Abstract: It is shown that a monopolistic firm under uncertainty may be inclined to keep some of its output unsold when demand is low. This gives rise to changes in conventional results. Under uncertainty, a risk‐neutral monopolistic firm produces more than in a deterministic environment and it refuses to sell its total output when demand is low, because the marginal revenue could become negative or lower than the cost of selling the product. Moreover, in this framework, prices are shown to be more rigid downwards than upwards. The model also provides a new explanation for labour hoarding. JEL classification: D24; D42

Date: 1999
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