Labour hoarding, price rigidity and the theory of imperfect competition under uncertain demand

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    Abstract

    It is shown that a monopolistic firm under uncertainty may be inclined to keep some of its output unsold when demand is low. This gives rise to changes in conventional results. Under uncertainty, a risk-neutral monopolistic firm produces more than in a deterministic environment and it refuses to sell its total output when demand is low, because the marginal revenue could become negative or lower than the cost of selling the product. Moreover, in this framework, prices are shown to be more rigid downwards than upwards. The model also provides a new explanation for labour hoarding.
    Original languageEnglish
    Pages (from-to)477-487
    Number of pages11
    JournalScandinavian Journal of Economics
    Volume101
    Issue number3
    Publication statusPublished - 1 Jan 1999

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