Price control and input inventory: The firm under disequilibrium trading

This paper analyzes the case of a small firm facing price controls in the market for its input and, therefore, the possibility of nonmarket clearing. The focus here is on input inventory levels, and their joint determination with purchase and use as input availability—or its probability density—shifts. The main result is that the firm will react to price shocks differently, depending upon whether the input market clears or is in excess demand. In particular, expected persistent increases in the input price lead to less storage when the market clears, but more storage when the firm is constrained in the state of excess demand.