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The Relative Rigidity of Monopoly Pricing

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Author Info
Rotemberg, Julio J
Saloner, Garth

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Abstract

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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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 77 (1987)
Issue (Month): 5 (December)
Pages: 917-26
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Handle: RePEc:aea:aecrev:v:77:y:1987:i:5:p:917-26

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dennis W. Carlton, 1987. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Olivier J. Blanchard & Nobuhiro Kiyotaki, 1985. "Monopolistic Competition, Aggregate Externalities and real Effects of Nominal Money," Working papers 401, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Olivier J. Blanchard & Nobuhiro Kiyotaki, 1989. "Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money," NBER Working Papers 1770, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Blackwell Publishing, vol. 44(2), pages 287-303, June. [Downloadable!] (restricted)
  5. Simon, Julian L, 1969. "A Further Test of the Kinky Oligopoly Demand Curve," American Economic Review, American Economic Association, vol. 59(5), pages 971-75, December. [Downloadable!] (restricted)
  6. Akerlof, George A & Yellen, Janet L, 1985. "A Near-rational Model of the Business Cycle, with Wage and Price Intertia," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 823-38, Supp.. [Downloadable!] (restricted)
  7. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December. [Downloadable!] (restricted)
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This page was last updated on 2009-11-16.

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