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Cyclical Pricing of Durable Goods

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  • Mark Bils

Abstract

I examine price markups in monopolisticly-competitive markets that experience fluctuations in demand because the economy experiences cyclical fluctuations in productivity. Markups depend positively on the average income of purchasers in the market. For a nondurable good average income of purchasers is procyclical; so the markup is procyclical. For a durable good. however. the average income of purchasers is likely to decrease in booms because low income consumers of the good concentrate their purchases in boom periods; so the markup is likely countercyclical. This is particularly true for growing markets. I find markups make the aggregate economy fluctuate more in response to productivity if goods are sufficiently durable.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3050.

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Date of creation: Jul 1989
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Handle: RePEc:nbr:nberwo:3050

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  1. Roberts, John & Sonnenschein, Hugo, 1977. "On the Foundations of the Theory of Monopolistic Competition," Econometrica, Econometric Society, vol. 45(1), pages 101-13, January.
  2. Jones, Larry E., 1983. "Existence of equilibria with infinitely many consumers and infinitely many commodities : A theorem based on models of commodity differentiation," Journal of Mathematical Economics, Elsevier, vol. 12(2), pages 119-138, October.
  3. Laurence M. Ball & David Romer, 1987. "Are Prices Too Sticky?," NBER Working Papers 2171, National Bureau of Economic Research, Inc.
  4. Bils, Mark, 1989. "Pricing in a Customer Market," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 699-718, November.
  5. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  6. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  7. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May.
  8. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
  9. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  10. Geary, Patrick T & Kennan, John, 1982. "The Employment-Real Wage Relationship: An International Study," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 854-71, August.
  11. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
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Cited by:
  1. Kala Krishna & Cemile Yavas, 2004. "Lumpy consumer durables, market power, and endogenous business cycles," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 375-391, May.
  2. Ignacio Fuentes & Teresa Sastre, 1999. "Mergers and Acquisitions in the Spanish Banking Industry: some Empirical Evidence," Banco de Espa�a Working Papers 9924, Banco de Espa�a.
  3. Andrew T. Young & Daniel Levy, 2013. "Explicit Evidence of an Implicit Contract," Emory Economics 1309, Department of Economics, Emory University (Atlanta).
  4. Huang, MeiChi, 2012. "Housing deep-habit model: Mutual implications of macroeconomics and asset pricing," Economics Letters, Elsevier, vol. 116(3), pages 526-530.
  5. Ernst R. Berndt & Ann F. Friedlaender & Judy Shaw-Er Wang Chiang, 1990. "Interdependent Pricing and Markup Behavior: An Empirical Analysis of GM, Ford and Chrysler," NBER Working Papers 3396, National Bureau of Economic Research, Inc.
  6. Michael J. Hicks, 2007. "Hierarchical delays as a source of nominal price rigidities: evidence from the microcomputer industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 803-815.
  7. Dexter, Albert S. & Levi, Maurice D. & Nault, Barrie R., 2002. "Sticky prices: the impact of regulation," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 797-821, May.

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