Industry equilibrium under random demand

Elisha A. Pazner*, Assaf Razin

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


The paper deals with the characterization of long-run industry equilibrium under random demand, for the two polar cases of perfect competition and pure monopoly. Contrary to the basic theorem of welfare economics for the standard (deterministic) case, it is shown that perfect competition does not in general lead to an optimal (efficient) outcome. Perfect competition is optimal if and only if firms display risk-neutrality with respect to profits. Surprisingly enough, when risk preferences are non-neutral, one could by means of price regulation lead monopoly to behave optimally, whereas this is impossible for competition.

Original languageEnglish
Pages (from-to)387-395
Number of pages9
JournalEuropean Economic Review
Issue number4
StatePublished - Oct 1975


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