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The Propagation of Demand Cycles When Purchases are Timed
This paper analyzes demand fluctuations in a market in which sellers have market power and
buyers time their purchases. It is shown that expected fluctuations in
demand are inherently fluctuations in the elasticity of demand that
generate smaller markups on the up-side of booms. Buyer intertemporal optimization
limits such price changes. When production exhibits increasing marginal costs, this
feature generates countercyclical markups and greater persistence of transitory changes in
demand. Using industry data, I demonstrate that consumer goods for
which timing is likely to be important do exhibit less real price response to
demand-driven movements in sales.
Adobe Acrobat, PDF, file
Paper was formerly
"The Timing of Purchases, Market Power, and Economic Fluctuations,"
SSRI Working paper 9723 at the
SSRI at Wisconsin.