Price Adjustment with Price Conjectures
We derive a measure of firm speed of price adjustment that is directly inversely related to market power and compare this to the measure derived by Martin (1993). However, both measures are incorrect when firms have price conjectural variations. This is because Taylor expansions of the demand function implicitly assume that firms influence the level of competing prices in a way that is consistent with their conjectures
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- Rudiger Dornbusch, 1985.
"Exchange Rates and Prices,"
NBER Working Papers
1769, National Bureau of Economic Research, Inc.
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- Yetman, James, 2003. "Fixed prices versus predetermined prices and the equilibrium probability of price adjustment," Economics Letters, Elsevier, vol. 80(3), pages 421-427, September.
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