Industrial Price Formation: Summary Part I

Part 1 (Chapters 2 and 3) deals with the transmission of price changes through the economy if there are constant technical coefficients of production and firms set their prices by adding a constant mark-up to average cost. I assume that the prices of the primary inputs are exogenous, so that price changes are transmitted only through intermediate cost. In Chapter 2 the properties of a static and a dynamic model are studied. In Chapter 3 a version of the dynamic model is applied to price formation in the Netherlands; the effects of changes in primary-input prices are dynamically simulated.