January 1, 1997

Marktwerking en de invloed van de bezettingsgraad op prijzen

Strong regulation and weak anti-cartel legislation have caused concern over sclerosis on Dutch goods markets, especially in sectors that are shielded from foreign competition.

Weak competitive forces may slow down price adjustment. According to one view, this would manifest itself in a weak level effect and a strong rate-of-change effect of capacity utilization in equations for relative price changes. This paper presents a theoretical analysis contesting this view. A strong rate-of-change effect is compatible with quick adjustment of prices to changes in short-run marginal cost. Moreover, sensitivity analysis with a small-scale model shows that a strong level effect does not promote fast return to long-run equilibrium. As, by its very nature, capacity utilization is a stationary variable, the long-run equilibrium itself is independent of the strengths of the level effect and the rate-of-change effect.


Ate Nieuwenhuis
Johan Graafland
Paula Terra-Pilaar