Advanced Search
MyIDEAS: Login

Scale Economies with Regard to Price Adjustment Costs and the Speed of Price Adjustment in Australian Manufacturing

Contents:

Author Info

  • Michael Olive

    ()
    (Department of Economics, Macquarie University)

Abstract

The standard quadratic price adjustment cost function makes no allowance for firm size or for scale economies. Incorporating quadratic price adjustment costs into the profit function, a firm's speed of price adjustment is both shown to be a positive/negative function of its size when firms have scale economies/diseconomies with regard to these costs and to be a negative function of market power. The intuitive explanation is that large firms that can defray this type of cost have less reason to slow price adjustment, while firms with market power are better able to offset price adjustment costs by slowing their speed of price adjustment. These results are used to derive an industry error correction model of pricing where the speed of price adjustment is a weighted average of the firm effects. Estimation of the model is carried out on data obtained from nine two-digit Australian manufacturing industries during the period 1994:3 to 2002:2. The empirical results suggest that the speed of price adjustment is positively related to the size of firms within an industry and negatively related to industry concentration. Given that these variables do not change rapidly over time, they are likely to have a steadying influence on the speed of price adjustment at an aggregate level in the face of changes to monetary and fiscal policy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.econ.mq.edu.au/research/2005/Olive_WP3.pdf
File Function: First Version, 2005
Download Restriction: no

Bibliographic Info

Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0507.

as in new window
Length: 27 pages.
Date of creation: May 2005
Date of revision:
Handle: RePEc:mac:wpaper:0507

Contact details of provider:
Postal: Sydney NSW 2109
Web page: http://www.econ.mq.edu.au/
More information through EDIRC

Related research

Keywords: Speed of price adjustment; adjustment costs; Australian manufacturing;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mac:wpaper:0507. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helen Boneham).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.