"Efficiency and Pricing in Dynamic Markets with Friction"

The production of any commodity over time is subject to some inter-temporal constraints which are collectively known as friction. If there is an unexpected increase in demand, it will take some time for supply to catch up with  it. In the face of uncertain demand, suppliers prefer to keep some capacity online not to miss a conceivable increase in the demand. We review the competitive equilibrium in a market which such a situation holds. We will also discuss some ideas to extend this setting to an oligopoly market structures. The applications of this problem range from inventory problems to power market.