Timing problem No. 2: You're ahead of the market demand curve and struggling to close sales.
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Here are three common timing issues: Timing problem No. 1: You're behind the market demand curve with a not-exponentially-better product — and losing to competitors or incumbents.
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The market demand curve is obtained by summing the quantities demanded by all consumers at each potential price, thus in the graph of the demand curve individuals' demand curves are added horizontally to obtain the market demand curve. The determinants of demand are: # Income. # Tastes and preferences. # Prices of related goods and services.
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Princeton 1990. The market demand curve is assumed to be linear and marginal costs are constant. To find the Cournot–Nash equilibrium one determines how each firm reacts to a change in the output of the other firm. The path to equilibrium is a series of actions and reactions.
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The only income distribution that is not permissible is a uniform one where all individuals have the same income and therefore, since they have the same preferences, they are all identical. For a while it was unclear whether SMD-style results also applied to the market demand curve itself, and not just the excess demand curve. But in 1982 Jordi Andreu established an important preliminary result suggesting that this was the case, and in 1999 Pierre-André Chiappori and Ivar Ekeland used vector calculus to prove that the Sonnenschein–Mantel–Debreu results do indeed apply to the market demand curve. This means that market demand curves may take on highly irregular shapes, quite unlike textbook models, even if all individual agents in the market are perfectly rational.
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Pindyck, R and Rubinfeld, D (2001) p. 341. In words, the rule is that the size of the markup of price over the marginal cost is inversely related to the absolute value of the price elasticity of demand for the good. The optimal markup rule also implies that a non-competitive firm will produce on the elastic region of its market demand curve.
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Total economic profit is represented by the area of the rectangle PABC. The optimum quantity (Q) is the same as the optimum quantity in the first diagram. If the firm is a monopolist, the marginal revenue curve would have a negative slope as shown in the next graph, because it would be based on the downward-sloping market demand curve. The optimal output, shown in the graph as Qm, is the level of output at which marginal cost equals marginal revenue.
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This is true because each point on the demand curve answers the question, "If buyers are faced with this potential price, how much of the product will they purchase?" But, if a buyer has market power (that is, the amount he buys influences the price), he is not "faced with" any given price, and we must use a more complicated model, of monopsony. As with supply curves, economists distinguish between the demand curve for an individual and the demand curve for a market. The market demand curve is obtained by adding the quantities from the individual demand curves at each price.
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By its very nature, conceptualising a demand curve requires that the purchaser be a perfect competitor—that is, that the purchaser has no influence over the market price. This is true because each point on the demand curve is the answer to the question "If this buyer is faced with this potential price, how much of the product will it purchase?". If a buyer has market power, so its decision of how much to buy influences the market price, then the buyer is not "faced with" any price and the question is meaningless. Like with supply curves, economists distinguish between the demand curve of an individual and the market demand curve.
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However, Abu Turab Rizvi comments that this result does not practically change the situation very much, because Brown and Matzkin's restrictions are formulated on the basis of individual-level observations about budget constraints and incomes, while general equilibrium models purport to explain changes in aggregate market-level data. The Sonnenschein–Mantel–Debreu results have led some economists, such as Werner Hildenbrand, to abandon the project of explaining the characteristics of the market demand curve on the basis of individual rationality. Instead, these authors attempt to explain the law of demand in terms of the organization of society as a whole, and in particular the distribution of income.
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In the 1982 book Handbook of Mathematical Economics, Hugo Sonnenschein explained some of the implications of his theorem for general equilibrium theory: A possible market demand curve according to the Sonnenschein–Mantel–Debreu results In other words, it cannot be assumed that the demand curve for a single market, let alone an entire economy, must be smoothly downward-sloping simply because the demand curves of individual consumers are downward-sloping. This is an instance of the more general aggregation problem, which deals with the theoretical difficulty of modeling the behavior of large groups of individuals in the same way that an individual is modeled. Frank Ackerman points out that it is a corollary of Sonnenschein–Mantel–Debreu that a Walrasian auction will not always find a unique and stable equilibrium, even in ideal conditions: Léon Walras' auction model requires that the price of a commodity will always rise in response to excess demand, and that it will always fall in response to a glut. But SMD shows that this will not always be the case, because the excess demand function need not be uniformly downward-sloping.
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