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Competitive Industry Dynamics with Constant Costs
Author(s) -
Currie Martin,
Kubin Ingrid
Publication year - 1998
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/1467-999x.00048
Subject(s) - sunk costs , investment (military) , production (economics) , economics , constant (computer programming) , microeconomics , industrial organization , dynamics (music) , econometrics , computer science , programming language , physics , politics , political science , acoustics , law
This paper integrates investment and production decisions in a dynamic model of a competitive industry where producers, facing a technology involving fixed input–output coefficients, employ quantity adjustment rules. Whether complex dynamic price behaviour is consistent with producers breaking‐even over time is explored. The proportion of costs which are sunk through investment is shown to have a potentially dramatic impact on the price dynamics. The implications of an alternative hypothesis— that producers ‘normally’ use their avail able capacities and only do otherwise if events are sufficiently dramatic—are explored