Author(s)

Gerald Aranoff

Ariel University Center of Samaria, Ariel, Israel.

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—that 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, 6/7^th 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.

Globalization, Manufacturing, Business Cycle, Marginal-Cost Pricing, Output-Rate Flexibility

Aranoff, G. (2017) Globalization: Alternative Pricing in a Peak-Load Pricing Model. Modern Economy, 8, 888-896. doi: 10.4236/me.2017.87062.