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Price Adjustment with Price Conjectures

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  • Michael Olive

Abstract

We derive a measure of firm speed of price adjustment that is directly inversely related to market power and compare this to the measure derived by Martin (1993). However, both measures are incorrect when firms have price conjectural variations. This is because Taylor expansions of the demand function implicitly assume that firms influence the level of competing prices in a way that is consistent with their conjectures

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File URL: http://repec.org/esAUSM04/up.30841.1077512603.pdf
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Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 131.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:131

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Keywords: Price adjustment; market power; conjectural variations;

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  1. Yetman, James, 2003. "Fixed prices versus predetermined prices and the equilibrium probability of price adjustment," Economics Letters, Elsevier, Elsevier, vol. 80(3), pages 421-427, September.
  2. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, American Economic Association, vol. 77(1), pages 93-106, March.
  3. Kenneth Kasa, 1998. "Identifying the source of dynamics in disaggregated import data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 13(3), pages 305-320.
  4. Jacqueline Dwyer & Kenneth Leong, 2001. "Changes in the determinants of inflation in Australia," BIS Papers chapters, in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 1-28 Bank for International Settlements.
  5. Harry Bloch & Michael Olive, 2003. "Influences on Pricing and Markup in Segmented Manufacturing Markets," Journal of Industry, Competition and Trade, Springer, Springer, vol. 3(1), pages 87-107, March.
  6. Martin, Christopher, 1993. "Price adjustment and market structure," Economics Letters, Elsevier, Elsevier, vol. 41(2), pages 139-143.
  7. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
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