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The Rigidity of Prices

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  • Carlton, Dennis W

Abstract

This paper uses evidence on individual transaction prices to analyze price behavior. The evidence shows that, for many transactions, pricesremain rigid for periods exceeding one year. The rigidity of price ispositively correlated with industry concentration. For several productsthe correlation of price changes across buyers is low. The paper alsoinvestigates the relationship between price rigidity, price change, andthe length of time a buyer and seller have been doing business together. The author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets. Copyright 1986 by American Economic Association.

Suggested Citation

  • Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
  • Handle: RePEc:aea:aecrev:v:76:y:1986:i:4:p:637-58
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    References listed on IDEAS

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    1. Frederick C. Mills, 1927. "Introduction to "The Behavior of Prices"," NBER Chapters, in: The Behavior of Prices, pages 31-36, National Bureau of Economic Research, Inc.
    2. Carlton, Dennis W, 1979. "Contracts, Price Rigidity, and Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1034-1062, October.
    3. Robert J. Barro, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 17-26.
    4. Frederick C. Mills, 1927. "The Behavior of Prices," NBER Books, National Bureau of Economic Research, Inc, number mill27-1.
    5. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
    6. Frederick C. Mills, 1927. "Appendix to "The Behavior of Prices"," NBER Chapters, in: The Behavior of Prices, pages 441-586, National Bureau of Economic Research, Inc.
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