Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. Globalization increases under open-market systems domestically and internationally¹.

Countries under open-market systems have large numbers of producers and buyers of goods and services each acting to his/her interest to secure profits and consumer welfare with minimal government interferrence/regulation.

Currency manipulations are acts of buyers and sellers of a country’s currency to alter its market value to achieve a desired purpose. Currency manipulation seen today is similar to dumping, the selling of goods to a foreign market at a lower price than sold in the domestic market. The renown Professor Jacob Viner writes² “Dumping may be maintained for long periods where its objective is to obtain the economies of full utilization of existing production facilities while charging a high price at home.’’

John M. Clark [1] writes³ on dumping:

“From the point of view of the foreigner, the chief objection to dumping arises from the fact that the cheap supplies cannot be relied on forever. Otherwise producers and consumers alike could adjust themselves to the blessings which the legerdemain of cost-accounting conjures into their laps, and the nation would be richer by the use of goods whose overhead costs they are not required to pay. When the goods which are dumped are raw materials, foreign producers may fatten their profits by using them, and perhaps sell the products back to the country from which the materials came. Producers who have to compete against dumping feel a grievance, especially as their markets are flooded at just the times when demand is weak and their efforts at stabilization are hampered. If the foreign country wishes to be self-sufficient it may be worth while for it to bear the immediate sacrifice involved in excluding goods which others wish to dump on them.”

Peak-load pricing has much in common with Clark’s views on fixed costs and the business cycle. Crew et al [3] (1995, 216-217) write on peak-load pricing:

“Peak-load pricing refers to the pricing of economically non-storable commodities whose demand varies periodically. If price were uniform over time, quantity demanded would rise and fall periodically. To meet demand at the peak would then require the installation of capacity which is under- utilized over the remainder of the cycle. Since the capacity is not costless, the resulting idleness during the off peak is the basis for the peak-load problem and the motivation for pricing to mitigate this inefficiency. [footnote] Peak-load pricing or joint product pricing might be considered an extreme form of economies of scope where, for the traditional one plant case, it certainly costs less to supply peak and off-peak demand by a single firm rather than have one firm supply peak demand and the other firm supply off-peak demand.’’

We illustrate globalization with a model of supply and demand, in two countries, Country_X and Country_Y, of a single product, Q, that has peak and off-peak demand periods. The product Q is homogeneous in that all Q units are assumed identical in the market. We assume two countries Country_X and Country_Y each with many manufacturers and buyers of Q. We assume that manufacturers and buyers of Q in one country can sell and buy Q with perfect ease in the second country. No country uses tariffs on imports or subsidies on exports. We assume no transportation costs. We assume Q manufacturers know the consumer- demand schedules.

There can be only one price per Q in any time period. Consumers pay market price times quantities purchased, T R = P × Q (total revenue to suppliers equals market price times quantities).

The demand curve shows the maximum quantities consumers would be willing to purchase at various prices. The assumption is that the demand curve is downward sloping, meaning that consumers would be willing to buy more Q if prices were lower, all else being the same. The area under the demand curve up to the point of quantities of market purchases shows the value to the consumer.

To prove in a mathematical model of fluctuating demand curves, D w 1 D w 2 , that a pricing scheme of a fixed price, P ¯ , in both periods gives more expected consumer surplus, E ( C S ) , than an alternative pricing scheme: P 1 for off-peak periods and P 2 for the peak periods under conditions that consumers pay the same expected total revenue, E ( T R ) , and receive the same expected goods, E ( Q ) .

Proposition I Under conditions of fluctuating downward-sloping demand curves, with frequencies w 1 and w 2 where w 1 + w 2 = 1 , a comparison of alternative pricing schemes

A: P 1 for off-peak periods and P 2 for the peak period

versus

B: P ¯ in both periods

shows E ( C S ) B − E ( C S ) A > 0 which rises as demand elasticity rises under conditions

E ( T R ) A = E ( T R ) B (1)

and

E ( Q ) A = E ( Q ) B (2)

Proof:

The downward fluctuating demand curves make for:

P 1 < P ¯ < P 2 (3)

and

B 1 < A 1 < A 2 < B 2 (4)

By definition of E ( T R ) :

E ( T R ) A = P 1 A 1 w 1 + P 2 A 2 w 2 (5)

and

E ( T R ) B = P ¯ ( B 1 w 1 + B 2 w 2 ) (6)

By definition of E ( Q ) :

E ( Q ) A = A 1 w 1 + A 2 w 2 (7)

and

E ( Q ) B = B 1 w 1 + B 2 w 2 (8)

By definition of E ( C S ) :

E ( C S ) A = ( C S A 1 , P 1 ) ( w 1 ) + ( C S A 2 , P 2 ) ( w 2 ) (9)

and

E ( C S ) B = ( C S B 1, P ¯ ) ( w 1 ) + ( C S B 2, P ¯ ) ( w 2 ) (10)

By assumption (1) we can state:

P 1 A 1 w 1 + P 2 A 2 w 2 = P ¯ ( B 1 w 1 + B 2 w 2 ) (11)

By assumption (2) we can state:

A 1 w 1 + A 2 w 2 = B 1 w 1 + B 2 w 2 (12)

Combining assumptions (1) and (2):

P 1 A 1 w 1 + P 2 A 2 w 2 = P ¯ ( A 1 w 1 + A 2 w 2 ) (13)

Rearranging:

( P ¯ − P 1 ) A 1 w 1 = ( P 2 − P ¯ ) A 2 w 2 (14)

Using letters of Figure 1 and Figure 2

F G H I × w 1 = C D E F × w 2 (15)

We can state:

E ( C S ) B − E ( C S ) A = ( C S B 1 , P ¯ ) ( w 1 ) + ( C S B 2 , P ¯ ) ( w 2 ) − ( C S A 1 , P 1 ) ( w 1 ) − ( C S A 2 , P 2 ) ( w 2 ) (16)

Rearranging:

E ( C S ) B − E ( C S ) A = ( ( C S B 2 , P ¯ ) − ( C S A 2 , P 2 ) ) ( w 2 ) − ( ( C S A 1 , P 1 ) − ( C S B 1 , P ¯ ) ) ( w 1 ) (17)

Using letters of Figure 1 and Figure 2:

E ( C S ) B − E ( C S ) A = ( C D E F + D E J ) × w 2 − ( F G H I − K G H ) × w 1 (18)

Which reduces to:

E ( C S ) B − E ( C S ) A = D E J × w 2 + K G H × w 1 (19)

E ( C S ) B − E ( C S ) A must be greater than zero, providing that price elasticities

of the demand curves are not zero. At zero price elasticity B 1 = A 1 and A 2 = B 2 and therefore E ( C S ) B − E ( C S ) A = 0 . Price elasticity > 0 makes E ( C S ) B − E ( C S ) A > 0 and rises as price elasticity rises.

Adding volatility in goods, more in peak times and less in off-peak times, adds to expected consumer surplus if consumers pay the same expected amounts and get the same expected goods over the cycle. Though peaks are infrequent, people have a human preference for increasing the peaks. This adds to growth. Though the off-peaks are frequent they are less important to people concerned with growth, achievement and happiness. Machines are not like people. Machines prefer regularity while people prefer irregularity. I present a numerical example in two Countries, X and Y, to make the economic points clearer.

I assume two countries Country_X and Country_Y each facing fluctuating demands, off-peak, with w 1 = 6 / 7 frequency and peak, with w 2 = 1 / 7 fre- quency. I assume a large country and a small country. I assume Country_Y is double the size of Country_X and has double the resources and the numbers of buyers and sellers of Q.

Figure 1 shows a geometric demonstration for Country_X and Figure 2 shows a geometric demonstration for Country_Y.

Since manufacturers and buyers of Q in Country_X can sell and buy Q with perfect ease in Country_Y there can be only one market price in both countries at the same time. I assume the varying prices, pricing alternative A, are $33 in off-peak and $51.9 in peak times. I assume the fixed price, pricing alternative B, is $36. I assume w 1 = 6 / 7 and w 2 = 1 / 7 .

Pricing alternative A, SRMC pricing, give more regularity of outputs, less volatility. In Country_X in Figure 1 with pricing alternative A, the outputs are 12.3 and 14.0. In Country_Y in Figure 2 with pricing alternative A, the outputs are 24.7 and 28.0.

Pricing alternative B, fixed prices, give more irregularity of outputs, more volatility. In Country_X in Figure 1 with pricing alternative B, the outputs are 11.7 and 18.0. In Country_Y in Figure 2 with pricing alternative B, the outputs are 23.3 and 36.0.

In Country_X in Figure 1:

E ( Q ) A = 6 / 7 × 12.3 + 1 / 7 × 14.0 = 12.6

E ( Q ) B = 6 / 7 × 11.7 + 1 / 7 × 18.0 = 12.6

E ( T R ) A = 6 / 7 × 33 × 12.3 + 1 / 7 × 51.9 × 14.0 = $ 451.7

E ( T R ) B = 6 / 7 × 36 × 11.7 + 1 / 7 × 36 × 18.0 = $ 451.7

In Country_Y in Figure 2:

E ( Q ) A = 6 / 7 × 24.7 + 1 / 7 × 28.0 = 25.2

E ( Q ) B = 6 / 7 × 23.3 + 1 / 7 × 36.0 = 25.2

E ( T R ) A = 6 / 7 × 33 × 24.7 + 1 / 7 × 51.9 × 28.0 = $ 906.3

E ( T R ) B = 6 / 7 × 36 × 23.3 + 1 / 7 × 36 × 36.0 = $ 904.1