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Speed of Price Adjustment with Price Conjecture

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  • Dr Michael Olive

    ()
    (Department of Economics, Macquarie University)

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    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 non-zero price conjectural variations and treat competing price levels as exogenous. This is because Taylor series 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://www.econ.mq.edu.au/research/2004/Olive_Mar04.pdf
    File Function: First Version, 2004
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    Bibliographic Info

    Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0402.

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    Length: 10 pages.
    Date of creation: Mar 2004
    Date of revision:
    Handle: RePEc:mac:wpaper:0402

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    Postal: Sydney NSW 2109
    Web page: http://www.econ.mq.edu.au/
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    Related research

    Keywords: Price adjustment; market power; conjectural variations;

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