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Price Adjustment with Price Conjectures

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  • Michael Olive

Abstract

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

Suggested Citation

  • Michael Olive, 2004. "Price Adjustment with Price Conjectures," Econometric Society 2004 Australasian Meetings 131, Econometric Society.
  • Handle: RePEc:ecm:ausm04:131
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    File URL: http://repec.org/esAUSM04/up.30841.1077512603.pdf
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    References listed on IDEAS

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    1. Martin, Christopher, 1993. "Price adjustment and market structure," Economics Letters, Elsevier, vol. 41(2), pages 139-143.
    2. Kenneth Kasa, 1998. "Identifying the source of dynamics in disaggregated import data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 305-320.
    3. Jacqueline Dwyer & Kenneth Leong, 2001. "Changes in the determinants of inflation in Australia," BIS Papers chapters,in: Bank for International Settlements (ed.), Empirical studies of structural changes and inflation, volume 3, pages 1-28 Bank for International Settlements.
    4. 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.
    5. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
    6. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    7. Harry Bloch & Michael Olive, 2003. "Influences on Pricing and Markup in Segmented Manufacturing Markets," Journal of Industry, Competition and Trade, Springer, vol. 3(1), pages 87-107, March.
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    More about this item

    Keywords

    Price adjustment; market power; conjectural variations;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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