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Staggered and Synchronized Price Policies Under Inflation: The Multi-Product Monopoly Case

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  • Sheshinski, Eytan
  • Weiss, Yoram

Abstract

This paper analyses the optimum pricing policies of a multiproduct monopoly in the presence of inflation and fixed costs of nominal price changes. We examine the conditions which lead to staggered or synchronized pricing policies when the timing of price changes is endogenous. Two aspects of the decision problem are emphasized: the interactions in the joint profit function between the prices of the various goods and the interactions in the costs of price adjustment. We show that with positive interactions in the profit function and costs of price adjustments that are independent across products, staggering is unlikely. Depending on initial conditions, a firm may follow a staggered steady state or a synchronized steady state path. But the former is locally unstable while the latter is attained from a broad set of initial conditions. For a small rate of interest the staggered policy is optimal if! the interaction in profits is negative.
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Suggested Citation

  • Sheshinski, Eytan & Weiss, Yoram, 1990. "Staggered and Synchronized Price Policies Under Inflation: The Multi-Product Monopoly Case," Foerder Institute for Economic Research Working Papers 275498, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275498
    DOI: 10.22004/ag.econ.275498
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    References listed on IDEAS

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    1. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
    2. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-599, May.
    3. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    4. Ball, Laurence & Cecchetti, Stephen G, 1988. "Imperfect Information and Staggered Price Setting," American Economic Review, American Economic Association, vol. 78(5), pages 999-1018, December.
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    6. Benabou, Roland, 1986. "Search, price setting & inflation," CEPREMAP Working Papers (Couverture Orange) 8622, CEPREMAP.
    7. repec:fth:harver:1428 is not listed on IDEAS
    8. Eytan Sheshinski & Yoram Weiss, 1977. "Inflation and Costs of Price Adjustment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(2), pages 287-303.
    9. Agnès Sulem, 1986. "Explicit Solution of a Two-Dimensional Deterministic Inventory Problem," Mathematics of Operations Research, INFORMS, vol. 11(1), pages 134-146, February.
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