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Storable good market with intertemporal cost variations

Fabio Antoniou () and Raffaele Fiocco ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: commitment; consumer storage; cost variations; pass-through; storable goods. (search for similar items in EconPapers)
JEL-codes: D21 D42 L12 (search for similar items in EconPapers)
Date: 2020-01
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