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General Equilibrium when Some Firms Follow Special Pricing Rules

Egbert Dierker
Roger Guesnerie
Wilhelm Neuefeind

Abstract

We consider economies in which some of the firms are price takers whereas other firms are price setters. The latter firms consider the output levels for their own products as well as the prices of the inputs as given, maximize their cost, and set prices for their products according to some specific pricing rule. We give conditions under which decentralizing prices and output levels exist. This existence of equilibrium theorem covers a wide array of pricing rules, as for instance, marginal cost pricing, pricing a la Boiteux, and Aumann-Shapley pricing.