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The Need for a Price Theory Revival
Is the time right for a price-theory revival? Recent prospects are encouraging, but there are significant challenges. We provide an overview of price-theoretic microeconomics, drawing on lessons from the Chicago, UCLA, and London-Vienna traditions. We also discuss contemporary scholarship about the place of price theory in economics education. Finally, we consider how to raise the relative status of price theory within the academy, which we view as a necessary but not sufficient condition for revitalizing price theory.
Journal Article
Price Theory
I argue that there exists a coherent and relevant tradition in economic thought that I label “price theory.” I define it as neoclassical microeconomic analysis that reduces rich and often incompletely specified models into “prices” (approximately) sufficient to characterize solutions to simple allocative problems. I illustrate this definition by highlighting distinctively price theoretic approaches to prominent research practices (diagrams and problems sets) and substantive research topics (e.g. selection markets and media slant). I trace the origins of price theory from the early nineteenth century through its segregation into the Chicago School in the last quarter of the twentieth. I argue that price theory plays a valuable complementary role to two traditions, “reductionism” and “empiricism,” with which I contrast it and show how this contribution of price theory has fueled a resurgence in this style of research in fields ranging from market design to international trade. Approximations critical to price theory are less formally developed than tools used in other methodological traditions, suggesting a research agenda to clarify the accuracy and range of validity of these methods.
Journal Article
Product Price Model Based on Random Exponential Pattern of Consumer Population Behaviour
Purpose: The main purpose of the article is to find the dynamic stability of the market equilibrium point under the specific assumptions of the consumer's surplus. The provided analysis takes advantage of the supply and demand for a hypothetical good using statistical methods. Design/Methodology/Approach: The research is based on the mathematical model with statistical distributions of selected microeconomic random variables. The equations refer to the consumer's willingness to buy a good (a deterministic equation), the purchase probability (a stochastic equation) and the price of the good as a function of the marginal cost and the fraction of consumers who buy the good (a deterministic equation). The three above equations are interdependent. The price equilibrium point is found using numerical approximations of the final equation. Findings: The model estimates the equilibrium price for a hypothetical good. In this paper it is assumed that the consumer may buy a product even if his or her surplus is negative. Moreover, a dynamic component, i.e. the derivative of the price over time has been added. Practical implications: The dynamic stability of the equilibrium point has been mathematically proven. The paper also contains the application of the model and the equilibrium price to the case of the Polish mortgage market in the fourth quarter of 2022. Originality value: The proposed rule is general and can be applied to other goods and markets. Keywords: Demand and supply curves, willingness to pay, consumer surplus, exponential distribution, dynamic stability.
Journal Article
Owning, Using, and Renting: Some Simple Economics of the “Sharing Economy”
New Internet-based “sharing-economy” markets enable consumer-owners to rent out their durable goods to nonowners. We model such markets and explore their equilibria both in the short run, in which ownership decisions are fixed, and in the long run, in which ownership decisions can be changed. We find that sharing-economy markets always expand consumption and increase surplus, but may increase or decrease ownership. Regardless, ownership is decoupled from individual preferences in the long run, as the rental rates and the purchase prices of goods become equal. If there are costs of bringing unused capacity to the market, they are partially passed through, creating a bias toward ownership. To test our theoretical work empirically, we conduct a survey of consumers, finding broad support for our modeling assumptions. The survey also allows us to offer a partial decomposition of the bring-to-market costs, based on attributes that make a good more or less amenable to being shared.
This paper was accepted by Joshua Gans, business strategy.
Journal Article