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Monopoly and lagged demand adjustments

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  • Rauscher, Michael

Abstract

In a dynamic optimisation model the profit maximising behaviour of a monopolist facing lagged adjustments of demand is investigated. It is shown that the long run equilibrium price differs from the static Cournot price. The monopolist sacrifices some of the long run profits in order to exploit the short run inelasticity of demand. If applied to OPEC and the world petroleum market, the model is able to explain the ups and downs of the oil price during the seventies and eighties.

Suggested Citation

  • Rauscher, Michael, 1986. "Monopoly and lagged demand adjustments," Discussion Papers, Series I 220, University of Konstanz, Department of Economics.
    • Handle: RePEc:zbw:kondp1:220
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    References listed on IDEAS

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    1. Michel, Philippe, 1982. "On the Transversality Condition in Infinite Horizon Optimal Problems," Econometrica, Econometric Society, vol. 50(4), pages 975-985, July.
    2. Pindyck, Robert S, 1978. "Gains to Producers from the Cartelization of Exhaustible Resources," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 238-251, May.
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