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Some Evidence on Lump Sum versus Convex Costs of Changing Prices

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  • Carlson, John A

Abstract

Two models in which price stickiness results from price adjustment costs are tested. One, an (s, S) pricing model, assumes lump-sum adjustment costs and predicts firms will make relatively large, infrequent price changes. The other assumes convex adjustment costs and predicts frequent, partial price adjustments. Survey data of firms' price behavior reveal patterns consistent with the (s, S) model. However, many of the patterns are also consistent with partial-adjustment rules, although the high percentage of firms which fix prices for a quarter or more casts doubt on the plausibility of the partial-adjustment hypothesis. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Carlson, John A, 1992. "Some Evidence on Lump Sum versus Convex Costs of Changing Prices," Economic Inquiry, Western Economic Association International, vol. 30(2), pages 322-331, April.
    • Handle: RePEc:oup:ecinqu:v:30:y:1992:i:2:p:322-31
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    Cited by:

    1. Dutta, Shantanu, et al, 1999. "Menu Costs, Posted Prices, and Multiproduct Retailers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 683-703, November.
    2. Wilko Letterie & Øivind A. Nilsen, 2022. "Pricing Behaviour and Menu Costs in Multi‐product Firms," Economica, London School of Economics and Political Science, vol. 89(355), pages 746-769, July.
    3. Davis, Michael C & Hamilton, James D, 2004. "Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 17-37, February.
    4. Saygın Şahinöz & Bedriye Saraçoğlu, 2011. "How do firms adjust their prices in Turkey? Micro-level evidence," Empirical Economics, Springer, vol. 40(3), pages 601-621, May.
    5. Elizabeth Powers & Nicholas Powers, 2001. "The Size and Frequency of Price Changes: Evidence from Grocery Stores," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(4), pages 397-416, June.
    6. Alexander L. Wolman, 2007. "The frequency and costs of individual price adjustment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 531-552.
    7. Slade, Margaret E., 1999. "Sticky prices in a dynamic oligopoly: An investigation of (s,S) thresholds," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 477-511, May.

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