Institutional aspects of price formation
Abstract
According to the traditional view of price formation, prices are the result of the interactions of supply and demand. An equilibrium price is one where the quantity demanded equals the quantity supplied. The price system provides a mechanism whereby changes in supply and demand conditions affect the allocative efficiency of resources. However, in an important measure, prices are not completely determined in the market by supply and demand, but by other factors such as power, market structures, conventions, rules, routines etc. The purpose of this paper is to investigate the role and influence of a variety of institutions in the pricing process, with particular emphasis on conventions.
Keywords pricing; institutions; conventions; heterodox economics
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