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State-Dependent Attention and Pricing Decisions

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  • Javier Turen

Abstract

This paper studies price-setting decisions under rational inattention. Prices are set by tracking an unobserved target whose distribution is also unknown. Information acquisition is dynamic and fully flexible since, given information acquired previously, price setters choose the amount of information they collect as well as how they want to learn about both the outcome and its distribution. We show that by allowing for imperfect information to be the unique source of rigidity, the model can reconcile stylized facts in the microeconomic evidence on price setting while simultaneously being consistent with empirical results on state-dependent attention.

Suggested Citation

  • Javier Turen, 2023. "State-Dependent Attention and Pricing Decisions," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 161-189, April.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:2:p:161-89
    DOI: 10.1257/mac.20210038
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    References listed on IDEAS

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    1. Fernando Alvarez & Francesco Lippi, 2010. "A note on price adjustment with menu cost for multi-product firms," EIEF Working Papers Series 1018, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2010.
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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