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The Setting of Retail Prices in a Customer Market

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  • McDonald, Ian M

Abstract

This paper extends the theory of the determination of retail prices in a customer market to a shop selling many types of goods. For a multigood shop, a discontinuous marginal revenue function for each good sold is derived. Under reasonable assumptions, the size of this discontinuity depends only on the customer dynamics and is independent of own-price elasticities and cross-price elasticities. A discussion of the determination of producer prices shows how the theory can explain the relative stability of retail prices. Copyright 1990 by The Economic Society of Australia.

Suggested Citation

  • McDonald, Ian M, 1990. "The Setting of Retail Prices in a Customer Market," The Economic Record, The Economic Society of Australia, vol. 66(195), pages 322-328, December.
  • Handle: RePEc:bla:ecorec:v:66:y:1990:i:195:p:322-28
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    References listed on IDEAS

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    1. Nelson, Edward & Nikolov, Kalin, 2003. "UK inflation in the 1970s and 1980s: the role of output gap mismeasurement," Journal of Economics and Business, Elsevier, pages 353-370.
    2. Randall Wray, 1993. "Government Deficits, Liquidity Preference, and Schumpeterian Innovation," Economics Working Paper Archive wp_99, Levy Economics Institute.
    3. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, pages 569-583.
    4. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, pages 11-32.
    5. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, pages 633-663.
    6. Hördahl, Peter, 2000. "Estimating the Implied Distribution of the Future Short-Term Interest Rate Using the Longstaff-Schwartz Model," Working Paper Series 111, Sveriges Riksbank (Central Bank of Sweden).
    7. Sargent, Thomas J, 1971. "A Note on the 'Accelerationist' Controversy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(3), pages 721-725, August.
    8. Hirose, Yasuo & Kamada, Koichiro, 2003. "A New Technique for Simultaneous Estimation of Potential Output and the Phillips Curve," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, pages 93-112.
    9. David Gruen & Tim Robinson & Andrew Stone, 2002. "Output Gaps in Real Time: Are They Reliable Enough to Use for Monetary Policy?," RBA Research Discussion Papers rdp2002-06, Reserve Bank of Australia.
    10. Tim Robinson & Andrew Stone & Marileze van Zyl, 2003. "The Real-time Forecasting Performance of Phillips Curves," RBA Research Discussion Papers rdp2003-12, Reserve Bank of Australia.
    11. Dungey, Mardi & Pitchford, John, 2000. "The Steady Inflation Rate of Economic Growth," The Economic Record, The Economic Society of Australia, pages 386-400.
    12. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, pages 633-663.
    13. Guy Debelle & Douglas Laxton, 1997. "Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 249-282, June.
    14. Dungey, Mardi & Pitchford, John, 2000. "The Steady Inflation Rate of Economic Growth," The Economic Record, The Economic Society of Australia, pages 386-400.
    15. Edward J. Green & Richard M. Todd, 2001. "Thoughts on the Fed's role in the payments system," Annual Report, Federal Reserve Bank of Minneapolis, issue Apr, pages 6-27.
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    Cited by:

    1. Sibly, Hugh, 2001. "Price Inflexibility in Markets with Repeat Purchasing," Journal of Macroeconomics, Elsevier, pages 459-475.
    2. Ali Choudhary & Thorlakur Karlsson & Gylfi Zoega, 2009. "Survey Evidence on Customer Markets," Birkbeck Working Papers in Economics and Finance 0916, Birkbeck, Department of Economics, Mathematics & Statistics.

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