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Variable Price Adjustment Costs

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  • Konieczny, Jerzy D

Abstract

The fixed (menu) cost approach has been criticized since administrative costs of price changes are small. This paper studies costs that depend on the size or the frequency of adjustment. The optimal pricing policy is similar to that in the menu cost model which is, therefore, a simple benchmark case. While recent empirical evidence implies rejection of the fixed cost model, it is consistent with the general specification used here. The analysis strongly suggests that nominal inflexibilities at the individual level are not due to administrative costs but result from unfavorable market response to price changes. Copyright 1993 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 31 (1993)
Issue (Month): 3 (July)
Pages: 488-98

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Handle: RePEc:oup:ecinqu:v:31:y:1993:i:3:p:488-98

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Cited by:
  1. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Papers 2011-03, Department of Economics, Bar-Ilan University.
  2. Avichai Snir & Daniel Levy & Alex Gotler & Haipeng (Allen) Chen, 2012. "Not All Price Endings are Created Equal: Price Points and Asymmetric Price Rigidity," Emory Economics 1206, Department of Economics, Emory University (Atlanta).
  3. Davis, Michael C & Hamilton, James D, 2004. "Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 17-37, February.
  4. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 380, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Watanabe, Makoto, 2008. "Inflation, price competition, and consumer search technology," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3780-3806, December.
  6. Attila Rátfai, 2007. "The frequency and size of price adjustment: microeconomic evidence," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 751-762.

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