Intertemporal Price Discrimination and Sticky Prices

It is shown that potential entry leads to a marginal-revenue-below-marginal-cost, while the possibility of building up inventories (voluntarily!) leads to the intertemporal discrimination rule, which provides a formal rationalization for normal. Equilibrium conditions for a group of firms are derived, using the intertemporal rule. These conditions can be written as linear estimating equations, regression coefficients explicitly linked with parameters representing market. They imply that, in more concentrated industries, cost increases are less fully and changes in demand are more fully transmitted into prices than in less industries.