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Planning and Market Structure

Dennis W. Carlton

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


NBER Working Paper No. w0425

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.

Number of Pages in PDF File: 41

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Date posted: June 25, 2004  

Suggested Citation

Carlton , Dennis W., Planning and Market Structure (1980). NBER Working Paper No. w0425. Available at SSRN: https://ssrn.com/abstract=226921

Contact Information

Dennis W. Carlton (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
312-322-0215 (Phone)

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National Bureau of Economic Research (NBER)
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