tag:blogger.com,1999:blog-6245381193993153721.post100957465085016845..comments2024-03-28T17:08:15.784-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Marginalism versus Post Keynesianism on Mark-up PricingLord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-6245381193993153721.post-59031253783009331662013-11-28T00:14:43.899-08:002013-11-28T00:14:43.899-08:00So you are saying that there is sufficient demand ...So you are saying that there is sufficient demand to create full employment? But that as demand falls or rises then firms have the alternative to reduce output or increase output.<br /><br />e.g we should specify the level of demand of the model which creates full employment according to the other variables, and then compare that level to the flexible model, and see if the prices come out different or the same?<br />Nic the NZerhttps://www.blogger.com/profile/03375388456334279479noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-51462460353719181972013-11-27T06:59:18.146-08:002013-11-27T06:59:18.146-08:00he model is very simple with assumptions that clea...he model is very simple with assumptions that clearly are not met in the real world. <br /><br />As stated I believe that most of the assumptions can be dropped and drive the same results. I am working on a more complex model to demonstrate that.<br /><br />As far as I can see there is no self-equilibrium mechanism in cost+markup models. I simply had to assume full employment so I could compare the relative prices and outputs of the 2 models (In a more complex version of the model there will have be a central authority adjusting AD to maintain full employment). Assuming AD is at the level needed to maintain full employment then outputs adjust to match the strength of demand (if the output of one good increases then the output of another good must decrease accordingly).<br />Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-71594929520317611322013-11-27T02:20:55.566-08:002013-11-27T02:20:55.566-08:00Pity, it appears Rob has left the building and I d...Pity, it appears Rob has left the building and I don't see any obvious way to resolve the key question of if employment is allowed to adjust or not (in Rob's statement of the problem).<br />Nic the NZerhttps://www.blogger.com/profile/03375388456334279479noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-47518402078954416482013-11-25T09:24:58.993-08:002013-11-25T09:24:58.993-08:00"The profit markup across sectors in the real..."The profit markup across sectors in the real world will always differ because competition is not efficient enough to drive profits to zero or even some uniform mark-up."<br /><br />Actually I disagree that this is necessarily the result. My line of thinking is that the Keen (and Stigler) critique of perfect competition appears still valid to me. The result of this being that even perfect competition yields the monopoly result, shall we say under reasonable assumptions.<br /><br />The main argument I have seen against is this one (from Chris Auld), "A 'competitive' firm in economic theory is one which takes prices as given, ignoring the effect of its own output on price. This is an assumption, not a result.". Such a firm also does not exist. As long as the demand curve slopes downwards the firms change in output still effects the market (right?). Despite the multiple claims of mathematical illiteracy on Keen's part, I simply don't see it (and I have a maths degree), while the argument seems to be that you can have a firm facing a horizontal and also downward sloping demand curve (which is mathematically illiterate).<br /><br />I think a similar result could hold here, though obviously the price adjusting market doesn't have to clear in this case...<br />Nic the NZerhttps://www.blogger.com/profile/03375388456334279479noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-4061172620486767162013-11-25T08:16:07.879-08:002013-11-25T08:16:07.879-08:00The first part of Rob's model sounds like a ge...The first part of Rob's model sounds like a general equilibrium state, which is simply irrelevant to the real world.<br /><br />The rest of it is unrealistic. For one thing it requires no barriers to entry or virtually no barriers to entry.<br /><br />The profit markup across sectors in the real world will always differ because competition is not efficient enough to drive profits to zero or even some uniform mark-up.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-85751513682457209882013-11-25T08:04:31.606-08:002013-11-25T08:04:31.606-08:00Rob, I quite like this challenge because its reaso...Rob, I quite like this challenge because its reasonably exactly stated and so the terms are not changing. The kind of stuff LK usually gets is arbitrary and changing definitions of terms so this is very reasonable, however<br /><br />Isn't your definition self contradictory? How can you have,<br /><br />"Full employment always holds" and "All firms would adjust their output to the demand that allowed them to produce just the qty they could sel at the cost+markup price".<br /><br />One of the themes of cost+ pricing is that firms adjust output levels, rather than prices. This is not consistent with guaranteed full employment is it?<br />Nic the NZerhttps://www.blogger.com/profile/03375388456334279479noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-69370198935917300432013-11-24T21:29:39.740-08:002013-11-24T21:29:39.740-08:00That is interesting.
If you set prices by calcula...That is interesting.<br /><br />If you set prices by calculating average costs of production per unit with the addition of a profit mark-up (and it sounds like you do ), then this is certainly a mark-up price.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-5487367821702148582013-11-24T12:54:59.209-08:002013-11-24T12:54:59.209-08:00I am not going to go into detail but I work at a c...I am not going to go into detail but I work at a company that you have heard of. We are currently examining the business process for pricing our product. Prices are revised on the basis of desired return on investment and incurred costs approximately yearly although there have been periods of time in which the price has gone unchanged for more than a year and a half this includes the years immediately following the recession. I think we may be said to have administered prices. Ken Bhttps://www.blogger.com/profile/12976919713907046171noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-78442776703771493002013-11-24T07:47:09.255-08:002013-11-24T07:47:09.255-08:00Take a very simple model where land and raw mate...Take a very simple model where land and raw materials are in abundant supply and all goods are produced by vertically-integrated companies who whose only cost is labor. labor is homogeneous. This labor is applied to extract raw materials , and then make the necessary capital and intermediate goods to produce the end product of consumer goods. All production processes are perfectly scalable. Full employment always holds Production techniques are fixed, and demand for output unvarying. Relative demand for all products is assumed to be the same no matter which pricing model is used, or how income is distributed.<br /><br />In a cost+markup world: Costs would be fixed at cost-of-labor+markup. All firms would adjust their output to the demand that allowed them to produce just the qty they could sel at the cost+markup price. The only things determining relative prices would be cost of production and strength of demand for those products at that price.<br /><br />In a marginal cost world: All prices are set by supply and demand. Assume imperfect competition so that as firms increase production they have to increase their input costs (wages in this simple model), and get a lower price for output. The set output and price at the point where the final piece of output generates a sufficient difference between cost and price to be worth producing. Assume that this "sufficient difference" is the same as the mark-up in the other model. Because of the assumptions I have made once the market price has been set it will true (by accounting principals) that all prices will equal to cost+markup (even though this is not the basis for price-setting used by firms)<br /><br /><br />I think it can be shown that market forces in this simple model will cause relative prices and output to tend towards the same as under cost+markup. The reason for this can be seen by looking at the situation where this was not true for a specific good. <br /><br />In both cases prices can be described in terms of the unit of labor embedded in them plus an addition for profit. If a price (expressed in labor terms) is higher under marginal pricing than cost+markup then it should be clear that the profit margins for that good will be higher than form other goods and (based on our assumptions) production will expand and price fall until its margins are the same as other goods. This process of price and qty adjustments will continue until all relative prices and output levels are the same as under cost+markup.<br /><br />I have made a lots of assumption and showing what happens when they are relaxed is too complex to show here.<br /><br />I believe it it is very possible to build more complex models with less restrictive assumptions than this one that show similar results. As long as one assumes that the price of raw materials and labor are set by supply and demand then cost+markup models will yeild the same results as marginal-pricing models given reasonable assumptions. Where the models differ is where these original factors are priced by other than supply and demand (for example by legislation or convention).Rob Rawlingsnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-39670521386301706132013-11-23T23:20:57.039-08:002013-11-23T23:20:57.039-08:00Lord Keyns! Very important information!
http://ww...Lord Keyns! Very important information!<br /><br />http://www.ebha.org/ebha2011/files/Papers/EBHA-Paper submitted by Tamara Ehs.pdf<br /><br />This article about austrian-interventionist.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-10083787756499054912013-11-23T06:13:03.155-08:002013-11-23T06:13:03.155-08:00A main issue here is dynamics. It is quite plausib...A main issue here is dynamics. It is quite plausible that the mark-up over average variable costs used in a particular industry is equivalent to the profit maximizing mark-up over marginal costs at a typical quantity of production ... however, the gap between variable cost and marginal cost may be different at different production quantities and the profit maximizing mark-up over marginal cost will also vary in different demand conditions as the elasticity of demand shifts. So the marginalist mark-up is responsive to changes in cost and demand conditions as they occur, while the mark-up over average variable costs is a strategic decision which is changed infrequently, with the timing of changes coinciding with the strategic decision making calendar.BruceMcFhttps://www.blogger.com/profile/08502035881761277885noreply@blogger.com