Non-price Competition, Real Rigidities and Inflation Dynamics
AbstractIn the last decade, the analytical progress achieved in the New Keynesian literature has been remarkable. Many of the early assumptions have been relaxed, leading to medium-scale macroeconomic models that are now able to capture many features of real-world data. Nevertheless, modern-day New Keynesian models still assume, as did their early counterparts, that firms compete in the market with no tools other than their relative prices. In particular, this literature has so far neglected the consequences of extending competition between firms to the non-price dimension. This paper tries to fill this gap by enriching the canonical New Keynesian framework to include both price and non-price competition. This has important consequences for the analysis of inflation dynamics, modifying in particular the inflation-marginal cost relationship. As a general result, we show that any activity by firms that boosts demand for their products, without directly affecting their prices, dampens the overall degree of real rigidities in price-setting.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2009-17.
Length: 27 pages
Date of creation: Jul 2009
Date of revision:
Publication status: Published by Ivie
Non-price competition; inflation dynamics; real rigidity;
Other versions of this item:
- Turino Francesco, 2010. "Non-Price Competition, Real Rigidities and Inflation Dynamics," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-61, July.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-17 (All new papers)
- NEP-CBA-2009-07-17 (Central Banking)
- NEP-MAC-2009-07-17 (Macroeconomics)
- NEP-MIC-2009-07-17 (Microeconomics)
- NEP-MKT-2009-07-17 (Marketing)
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