Labour hoarding, price rigidity and the theory of imperfect competition under uncertain demand

It is shown that a monopolistic firm under uncertainty may be inclined to k eep some of its output unsold when demand is low. This gives rise to change s in conventional results. Under uncertainty, a risk-neutral monopolistic f irm produces more than in a deterministic environment and it refuses to sel l its total output when demand is low, because the marginal revenue could b ecome negative or lower than the cost of selling the product. Moreover, in this framework, prices are shown to be more rigid downwards than upwards. T he model also provides a new explanation for labour hoarding. JEL classific ation: D24; D42.