This paper seeks to explain why monopolies keep their nominal prices constant for longer periods than do tight oligopolies. The authors show that cost changes create a larger incentive for duopolists to change their prices, while demand changes tend to have a greater effect on a monopolist. When both costs and demand are affected by small changes in the overall price level, the cost effect dominates. In the presence of a small fixed cost of changing prices, therefore, duopolists change their prices in response to smaller perturbations in underlying conditions. Copyright 1987 by American Economic Association.
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Volume (Year): 77 (1987) Issue (Month): 5 (December) Pages: 917-26 Download reference. The following formats are available: HTML
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Dennis W. Carlton, 1987.
"The Rigidity of Prices,"
NBER Working Papers
1813, National Bureau of Economic Research, Inc.
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