In the traditional models of customer markets it can be identified a price rigidity due to the existence of a discontinuity in the firm’s marginal revenue curve. This paper presents a microeconomic model that combines the hypothesis of a risk-averse pricesetting firm with the customer markets analysis. We show that, when a shock to marginal cost moves marginal cost curve outside the discontinuity range of marginal revenue curve, the adjustment of price under risk aversion tends to be more sluggish than under risk neutrality and a sufficiently great risk aversion implies price inertia.
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Paper provided by Doctoral School of Economics, Sapienza University of Rome in its series Working Papers with number
2.
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Find related papers by JEL classification: D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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