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Price-Value Potential for Near-Perfectly Competitive Markets

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Author(s): Sergey K. Aityan

Journal: American Journal of Economics and Business Administration
ISSN 1945-5488

Volume: 3;
Issue: 4;
Start page: 623;
Date: 2011;
Original page

Keywords: Market equilibrium | differentiation | perfect competition | value | price-value | market modeling | market free energy

ABSTRACT
This study introduces price-value potential to be used instead of price for market analysis by analogy with free energy or thermodynamic potential in physics. A conservation principle is proposed for price-value potential. It is shown that price-value potential provides a constructive way for market analysis by identifying variation of equilibrium prices and quantities for different products in market equilibrium. A perturbation theory for a group of products with small differentiations on near-perfectly competitive markets was developed for illustration of the approach. The concept of price-value potential is illustrated in a simple example of a near-perfectly competitive market. It is shown that the equilibrium prices and quantities for products differ due to product differentiation that makes such an approach a constructive enhancement to the classical model of perfect competition.
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