TY  - JOUR
AU  - Carlton,Dennis W.
TI  - Planning and Market Structure
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 425
PY  - 1982
Y2  - September 1982
UR  - http://www.nber.org/papers/w0425
L1  - http://www.nber.org/papers/w0425.pdf
N1  - Author contact info:
Dennis W. Carlton
Booth School of Business
University of Chicago
5807 S. Woodlawn Ave.
Chicago, IL 60637
Tel: 847/217-6000
Fax: 312/322-0262
E-Mail: dennis.carlton@chicagobooth.edu
M1  - published as Dennis W. Canton. "Planning and Market Structure," in John McCall, ed., "The Economics of Information and Uncertainty" University of Chicago Press (1982)

AB  - This paper examines a model in which demand is uncertain and production must occur before demand is known for sure. By investing resources in information gathering activity, demand can be forecast. The paper investigates the relationship between the incentive to plan and market structure and conduct. Competition leads to too little planning, while monopoly leads to too high a price relative to the social optimum. A dominant firm with a competitive fringe turns out to be better. than either pure competition or monopoly. One interesting result is that the optimal production strategy of the dominant firm is to produce even when price is below marginal cost. Although such a production policy resembles that associated with "predatory pricing" (a practice which is thought to be socially undesirable), society would be harmed by prohibition of such a policy.
ER  -