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Speed of Price Adjustment with Price Conjecture

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Author Info
Dr Michael Olive () (Department of Economics, Macquarie University)
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 Format: application/pdf
File Function: First Version, 2004
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Publisher Info
Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0402.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
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;

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

References listed on IDEAS
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  1. Yetman, James, 2003. "Fixed prices versus predetermined prices and the equilibrium probability of price adjustment," Economics Letters, Elsevier, vol. 80(3), pages 421-427, September. [Downloadable!] (restricted)
  2. Martin, Christopher, 1993. "Price adjustment and market structure," Economics Letters, Elsevier, vol. 41(2), pages 139-143. [Downloadable!] (restricted)
  3. Kraft, Kornelius, 1995. "Determinants of Price Adjustment," Applied Economics, Taylor and Francis Journals, vol. 27(6), pages 501-07, June.
  4. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
    Other versions:
  5. Kenneth Kasa, 1998. "Identifying the source of dynamics in disaggregated import data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 305-320. [Downloadable!]
  6. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December. [Downloadable!] (restricted)
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