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Competitiveness, market power and price stickiness: A paradox and a resolution Author info | Abstract | Publisher info | Download info | Related research | Statistics Jean-Pascal Bénassy
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Are prices less sticky when markets are more competitive? Our intuition would naturally lead us to give an affirmative answer to that question. But we first show that DSGE models with staggered price or wage contracts have actually the opposite and paradoxical property, namely that price stickiness is an increasing function of competitiveness. To eliminate this paradox, we next study a model where monopolistic competitors choose prices optimally subject to a cost of changing prices as in Rotemberg (1982a,b). For a given cost function, we find the more intuitive result that more competitiveness leads to more flexible prices.
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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number
2005-49.
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Date of creation: 2005Date of revision:
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Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
David de la Croix & Gregory de Walque & Rafael Wouters, 2006.
"Dynamics and monetary policy in a fair wage model of the business cycle ,"
Research series
200610-10, National Bank of Belgium.
[Downloadable!]
Other versions:
David de la Croix & Gregory de Walque & Rafael Wouters, 2007.
"Dynamics and monetary policy in a fair wage model of the business cycle ,"
Working Paper Series
780, European Central Bank.
[Downloadable!] David, DE LA CROIX & Gregory, DE WALQUE & Rafael, WOUTERS, 2006.
"Dynamics and monetary policy in a fair wage model of the business cycle ,"
Université catholique de Louvain, Département des Sciences Economiques Working Paper
2006061, Université catholique de Louvain, Département des Sciences Economiques.
[Downloadable!]
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