Abstract
For many bulk commodities, such as mineral ores, crude oil, building materials and food grains, the suppliers are increasingly in the position of being price-takers. This means that, in the short run, their main decisions relate to spatial choice of markets and setting of production levels within the currently available capacity. In this paper, an entropy maximisation framework is introduced to handle dispersion about the profit-maximising choice of markets and production levels by the suppliers. The model also uses information theory to implicitly account for certain rigidities in trading relationships resulting from non-price factors. Although demand functions must be provided exogenously, cost functions can be inferred from regional vintage production data, which in turn allow profit functions to be defined for each producing region or country. A unique and stable dispersed price equilibrium of the Walrasian type is established for this spatial system under quite general conditions.
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Lively discussions with David Batten and Börje Johansson over the last couple of years were of considerable help in motivating the structure of the model presented in this paper. Also, perceptive in-house reviews by the author's colleagues, Joe Flood and Bertil Marksjö, greatly sharpened up the presentation.
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Roy, J.R. A dispersed equilibrium commodity trade model. Ann Reg Sci 24, 13–28 (1990). https://doi.org/10.1007/BF01579891
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DOI: https://doi.org/10.1007/BF01579891