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Price stickiness and markup variations in market games

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  • Chen, Guo
  • Korpeoglu, C. Gizem
  • Spear, Stephen E.

Abstract

In this paper, we show that the Shapley–Shubik market game model with production naturally generates an equilibration mechanism that can accommodate price stickiness arising from strategic interactions of firms. Unlike New Keynesian models that show similar price stickiness results, the market game model does not require enforcing menu costs or other additional restraints on price adjustment mechanisms in order to generate price stickiness. As such, we suggest that the market game model can provide a good micro-foundation for macroeconomic analysis. We then explicitly show the relationship between a typical firm’s markup of price over marginal cost and its market share.

Suggested Citation

  • Chen, Guo & Korpeoglu, C. Gizem & Spear, Stephen E., 2017. "Price stickiness and markup variations in market games," Journal of Mathematical Economics, Elsevier, vol. 72(C), pages 95-103.
    • Handle: RePEc:eee:mateco:v:72:y:2017:i:c:p:95-103
    DOI: 10.1016/j.jmateco.2017.07.003
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    Cited by:

    1. Ueda, Kozo, 2023. "Duopolistic competition and monetary policy," Journal of Monetary Economics, Elsevier, vol. 135(C), pages 70-85.
    2. Alex Dickson & Simone Tonin, 2021. "An introduction to perfect and imperfect competition via bilateral oligopoly," Journal of Economics, Springer, vol. 133(2), pages 103-128, July.
    3. C. Gizem Korpeoglu & Ersin Körpeoğlu & Soo-Haeng Cho, 2020. "Supply Chain Competition: A Market Game Approach," Management Science, INFORMS, vol. 66(12), pages 5648-5664, December.

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