%0 Journal Article
%T Globalization: Alternative Pricing in a Peak-Load Pricing Model
%A Gerald Aranoff
%J Modern Economy
%P 888-896
%@ 2152-7261
%D 2017
%I Scientific Research Publishing
%R 10.4236/me.2017.87062
%X We discuss globalization and the current recession
in manufacturing and construction. We present a theoretical model of
globalization, of two countries, X and Y, each with open-market systems
domestically and internationally. We compare two pricing policies in each
country: short-run marginal cost, SRMC, versus prices fixed, , over
the business cycle. We present a proposition and proof. We give a detailed
numerical example with graphs for each country. The main result is that over
the business cycle increases the volatility of Q demand over the cycle and
increases consumer surplus in both countries under certain conditions. The
numerical example shows a drawback of SRMC pricing under demand fluctuations¡ªthat
the required price in high-demand times to balance accounts becomes extremely
high. Consumers are better off with , paying a small increase over SRMC in the off-peak, 6/7th of
the time, to avoid the extremely large required price of SRMC in the peak
times, because it¡¯s only 1/7 of the time. The surprising point is that though
peak times are infrequent, the prices and quantities at peak times determine which pricing
arrangement is better for consumers.
%K Globalization
%K Manufacturing
%K Business Cycle
%K Marginal-Cost Pricing
%K Output-Rate Flexibility
%U http://www.scirp.org/journal/PaperInformation.aspx?PaperID=77740