The Propagation of Demand Cycles When Purchases are Timed
This paper analyzes demand fluctuations in a market in which sellers have market power and buyers time their purchases. It is shown that expected fluctuations in demand are inherently fluctuations in the elasticity of demand that generate smaller markups on the up-side of booms. Buyer intertemporal optimization limits such price changes. When production exhibits increasing marginal costs, this feature generates countercyclical markups and greater persistence of transitory changes in demand. Using industry data, I demonstrate that consumer goods for which timing is likely to be important do exhibit less real price response to demand-driven movements in sales.Paper was formerly "The Timing of Purchases, Market Power, and Economic Fluctuations," SSRI Working paper 9723 at the SSRI at Wisconsin.