Question: According to Robert Guy Matthews Fixed Costs Chafe at Steel
According to Robert Guy Matthews, “Fixed Costs Chafe at Steel Mills,” Wall Street Journal, June 10, 2009, stainless steel manufacturers increased prices even though the market demand curve had shifted to the left. In a letter to its customers, one of these companies announced that “Unlike mill increases announced in recent years, this is obviously not driven by increasing global demand, but rather by fixed costs being proportioned across significantly lower demand.” If the firms are oligopolistic, produce a homogeneous good, face a linear market demand curve and have linear costs, and the market outcome is a Nash-Cournot equilibrium, does the firm’s explanation as to why the market equilibrium price is rising make sense? What is a better explanation?
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