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Price Adjustment with Price Conjectures

  • Michael Olive

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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Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 131.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:131
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  1. 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.
  2. 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.
  3. Martin, Christopher, 1993. "Price adjustment and market structure," Economics Letters, Elsevier, vol. 41(2), pages 139-143.
  4. Rudiger Dornbusch, 1985. "Exchange Rates and Prices," NBER Working Papers 1769, National Bureau of Economic Research, Inc.
  5. 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.
  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. 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.
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