Price Equilibrium with Selling Constraints

Arbeitspapier

This paper studies how selling constraints, which refer to the inability of firms to attend to all the buyers who want to inspect their products, affect the equilibrium price and social welfare. We show that the price that maximizes social welfare is greater than the marginal cost. This is because with selling constraints, a higher price, despite reducing the probability of trade (fewer buyers are willing to pay a higher price) increases the value of trade (only trades generating positive surplus are consummated). We show that the equilibrium price is inefficiently high except in the limit when firms' selling constraints vanish and consumers observe prices before they visit firms. Thus, selling constraints constitute a source of market power.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 10583

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: General ; Mobility, Unemployment, Vacancies, and Immigrant Workers: General ; Market Structure, Firm Strategy, and Market Performance: General ; Industry Studies: Services: General ; Real Estate Markets, Spatial Production Analysis, and Firm Location: General
• Subject: price competition ; market power ; capacity- and selling-constrained firms

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Moraga-González, José L. ; Watanabe, Makoto
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/279334
• Last update: 12.03.2025, 2:43 AM CET