Planning and Market Structure

41 Pages Posted: 25 Jun 2004 Last revised: 1 Sep 2022

See all articles by Dennis W. Carlton

Dennis W. Carlton

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: 1980


This paper examines a model in which demand is uncertain and production must occur before demand is known for sure. By investing resources in information gathering activity, demand can be forecast. The paper investigates the relationship between the incentive to plan and market structure and conduct. Competition leads to too little planning, while monopoly leads to too high a price relative to the social optimum. A dominant firm with a competitive fringe turns out to be better. than either pure competition or monopoly. One interesting result is that the optimal production strategy of the dominant firm is to produce even when price is below marginal cost. Although such a production policy resembles that associated with "predatory pricing" (a practice which is thought to be socially undesirable), society would be harmed by prohibition of such a policy.

Suggested Citation

Carlton, Dennis W., Planning and Market Structure (1980). NBER Working Paper No. w0425, Available at SSRN:

Dennis W. Carlton (Contact Author)

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