Dear pen,
I noticed Tom W.'s question about non-falling prices, and his
wistful note to the effect that the responses did not answer the
question: all known price models, including monopoly, suggest that
price will fall with demand.
Except one: the entry-preventing oligopoly model formalized by
Silos-Labini (I think) in the 1950s. I would have to look up the
reference, but the essential idea is that existing producers form
an (implicit or explicit) cartel, and set price at exactly the level
at which any potential entrant, assuming (as the cartel assumes they
will assume) that the cartel will maintain price even by cutting
output if necessary, will see no profit margin and therefore be
prevented from entering. In effect, when demand falls, the cartel
shares out among its members a fall in output, maintaining price,
rather than allowing price reductions that would obliterate the
boundaries of the cartel.
I have no idea whether this is realistic, or whether it applies
to Nikes, etc. It is also relevant as (yet another) microfoundation
for Keynesian macro behavior, although again it is perhaps a rather
slender reed to be used for that purpose.
Best,
o/^^^^^) o !
/ / /^^) /› /^^! /^^)
o(_____/_(_ /(/ ›/ !_(_ /!_
David Laibman dlaibman@bklyn
or: [EMAIL PROTECTED]
Department of Economics Editor, Science & Society
Brooklyn College John Jay College
2900 Bedford Avenue 445 West 59th St.
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Chapter, Professional Staff
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