Price Equilibrium with Selling Constraints

Jose Moraga-Gonzalez, Makoto Watanabe and José Luis Moraga Gonzalez

No 10583, CESifo Working Paper Series from CESifo

Abstract: 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.

Keywords: price competition; market power; capacity- and selling-constrained firms (search for similar items in EconPapers)
JEL-codes: D40 J60 L10 L80 R30 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-mic
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Price equilibrium with selling constraints (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10583

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