I see that TurnTrout did actually write “There’s no economic incentive for them to increase production” (in a situation where prices can’t increase), which I agree is wrong outside Econ101-land (because supply is a function of expected demand as well as price, so in situations of increased demand there’s an incentive to produce more even if prices can’t increase). I suspect that TurnTrout was being sloppy rather than outright wrong and didn’t really mean to claim quite what he did, but you’d have to ask him to find out whether my guess is right or not.
If you end up being right about this consideration, it’s fairer to say that I was wrong, because I hadn’t thought of it.
But I don’t yet clearly see the argument. Competitive firms produce until P=MR=MC. If (expected) demand increases and there’s a binding price ceiling at P, the firm still has P=MR=MC and so extracts no economic profit from producing a greater quantity.
If MC is locally constant, then I suppose they could increase production without economic loss. But that seems bad because once the demand shock subsides, they’ll be stuck with too much production capacity and no one to sell it to, right?
EDIT: Another way I could be wrong is if short run supply were responsive enough to adjust on non-price dimensions, like lower quality same price, to drive up profit and produce more overall.
If you end up being right about this consideration, it’s fairer to say that I was wrong, because I hadn’t thought of it.
But I don’t yet clearly see the argument. Competitive firms produce until P=MR=MC. If (expected) demand increases and there’s a binding price ceiling at P, the firm still has P=MR=MC and so extracts no economic profit from producing a greater quantity.
If MC is locally constant, then I suppose they could increase production without economic loss. But that seems bad because once the demand shock subsides, they’ll be stuck with too much production capacity and no one to sell it to, right?
EDIT: Another way I could be wrong is if short run supply were responsive enough to adjust on non-price dimensions, like lower quality same price, to drive up profit and produce more overall.