Menu-cost models that provide a theoretical underpinning for the "Keynesian asymmetry" whereby nominal prices are more flexible upward than downward consider relatively uncompetitive market structures (monopoly, oligopoly, monopolistic competition). We examine the effect of menu costs on a "quasi-competitive" industry (a Bertrand oligopoly with menu costs and free entry) and identify simple conditions under which the assymetry is reversed: nominal price becomes more flexible downward than upward. Our analysis suggests that, in the presence of menu costs, the pattern of nominal price adjustment is related to the form and extent of imperfect competion.
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Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number
0018.
Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection