tag:blogger.com,1999:blog-6245381193993153721.post1494272950324652155..comments2024-03-17T00:23:24.896-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Mark-up Pricing in 11 Nations and the Eurozone: the Empirical Evidence Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-6245381193993153721.post-67957406966890517722014-02-21T22:37:20.695-08:002014-02-21T22:37:20.695-08:00Yes, this is right:
http://socialdemocracy21stcen...Yes, this is right:<br /><br />http://socialdemocracy21stcentury.blogspot.com/2013/11/price-average-total-cost-average.htmlLord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-85199692391267448502014-02-21T11:42:02.352-08:002014-02-21T11:42:02.352-08:00Oh. I might understand now. Because, for example...Oh. I might understand now. Because, for example, plants are built with excess capacity, the marginal cost of running the plant a little more is less than the average cost. This produces a downward sloping average cost curve instead of the upwards sloping curve normally assumed. So the usual graph with the Harberger triangle doesn't apply, right?<br /><br />A diagram would help me.Mike Hubenhttps://www.blogger.com/profile/01371469964446567690noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-17462256672540319782014-02-21T01:34:08.475-08:002014-02-21T01:34:08.475-08:00"doesn't mark-up pricing cause deadweight...<i>"doesn't mark-up pricing cause deadweight losses the same way a tax or a monopoly does, by raising the price and reducing the amount purchased?"</i><br /><br />Perhaps I misunderstood the question, but it appears to be: Does mark-up pricing make businesses less profitable, since they could (if the demand curve for their product was well behaved) increase revenue by cutting price and equating it with marginal cost ?<br /><br />The answer for most firms is "no." For most firms, equating price with marginal cost is a recipe for bankruptcy.<br /><br />Firms need to recover total average costs to avoid losses, so they cannot charge a price below total average unit costs. Even when price is at total average unit costs, they make no profit. But what use is that?<br /><br />They <i>need</i> to charge a markup to create profit.<br /><br />Of course, the question whether the mark-up is too large, unreasonable or unfair might arise, but that is a separate question.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-12226901263604658362014-02-20T13:16:51.814-08:002014-02-20T13:16:51.814-08:00I don't disagree, but by the same standard you...I don't disagree, but by the same standard you could call taxes rational behavior by governments.<br /><br />But that doesn't answer my question: doesn't mark-up pricing cause deadweight losses the same way a tax or a monopoly does, by raising the price and reducing the amount purchased?Mike Hubenhttps://www.blogger.com/profile/01371469964446567690noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-77095955601074903972014-02-20T03:46:15.601-08:002014-02-20T03:46:15.601-08:00Actually, you could say that mark-up prices are, f...Actually, you could say that mark-up prices are, from a realistic perspective, an example of "rational" behavior by firms.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-29302142411487068772014-02-20T03:25:53.746-08:002014-02-20T03:25:53.746-08:00Actually, would mark-up prices be an example of de...Actually, would mark-up prices be an example of deadweight losses?Mike Hubenhttps://www.blogger.com/profile/01371469964446567690noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-29562632322796347472014-02-19T22:00:22.405-08:002014-02-19T22:00:22.405-08:00(1) Yes, the description is great.
(2) well, it i...(1) Yes, the description is great.<br /><br />(2) well, it is a "market failure" under marginalist/neoclassical theory, but from a Post Keynesian perspective it is not clear this is a market failure, because that implies that the "natural" state of the market is movement towards market clearing prices and to marginal cost.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-75011704110379704632014-02-19T15:49:10.751-08:002014-02-19T15:49:10.751-08:00I've added this to my Critiques site under a M...I've added this to my Critiques site under a Mark-up Prices index.<br /><br />My description of mark-up prices is:<br /><br />The widespread real-world use of mark-up prices, also known as administered prices, contradict the assumptions of marginalist theory of prices and many DSGE models based on marginal costs.<br /><br />Is this good? Should I also call this a market failure of some sort, such as sticky prices?Mike Hubenhttps://www.blogger.com/profile/01371469964446567690noreply@blogger.com