A note on price adjustment with menu cost for multi-product firms
We study the stylized problem of a multi-product firm that can revise prices only after paying a fixed “menu” cost. The key assumption, introduced by Lach and Tsiddon (1996, 2007) and Midrigan (2007, 2009), is that once the menu cost is paid the firm can adjust the price of all its products. The firm’s problem is to minimize the deviations of the profits incurred relative to the flexible price case, i.e. the case with no menu cost. We completely characterize the solution of a simple symmetric problem in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products sold by the firm. We also provide analytical expressions for the frequency of adjustment, the hazard rate of price adjustments, and the distribution of price changes in terms of the structural parameters.
|Date of creation:||2010|
|Date of revision:||Dec 2010|
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- Dutta, Shantanu, et al, 1999.
"Menu Costs, Posted Prices, and Multiproduct Retailers,"
Journal of Money, Credit and Banking,
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- Shantanu Dutta & Mark Bergen & Daniel Levy & Robert Venable, 2005. "Menu Costs, Posted Prices, and Multiproduct Retailers," Macroeconomics 0505007, EconWPA.
- F. Alvarez & F. Lippi & L. Paciello, 2010.
"Optimal price setting with observation and menu costs,"
2010 Meeting Papers
478, Society for Economic Dynamics.
- Fernando E. Alvarez & Francesco Lippi & Luigi Paciello, 2011. "Optimal Price Setting With Observation and Menu Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1909-1960.
- Fernando E. Alvarez & Francesco Lippi & Luigi Paciello, 2010. "Optimal price setting with observation and menu costs," NBER Working Papers 15852, National Bureau of Economic Research, Inc.
- Fernando Alvarez & Francesco Lippi & Luigi Paciello, 2010. "Optimal Price Setting with Observation and Menu Costs," EIEF Working Papers Series 1010, Einaudi Institute for Economics and Finance (EIEF), revised May 2010.
- Alvarez, Fernando & Lippi, Francesco & Paciello, Luigi, 2010. "Optimal price setting with observation and menu costs," CEPR Discussion Papers 7861, C.E.P.R. Discussion Papers.
- Laurent Baudry & Hervé Le Bihan & Patrick Sevestre & Sylvie Tarrieu, 2007.
"What do Thirteen Million Price Records have to Say about Consumer Price Rigidity?,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 69(2), pages 139-183, 04.
- Laurent Baudry & Hervé Le Bihan & Patrick Sevestre & Sylvie Tarrieu, 2007. "What do thirteen million price records have to say about consumer price rigidity?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00279976, HAL.
- Emmanuel Dhyne & Jerzy Konieczny, 2007.
"Temporal Distribution of Price Changes: Staggering in the Large and Synchronization in the Small,"
Working Paper Series
01-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
- Emmanuel Dhyne & Jerzy Konieczny, 2007. "Temporal Distribution of Price Changes : Staggering in the Large and Synchronization in the Small," Working Paper Research 116, National Bank of Belgium.
- Alberto Cavallo, 2015. "Scraped Data and Sticky Prices," NBER Working Papers 21490, National Bureau of Economic Research, Inc.
- Robert Lucas & Mike Golosov, 2004.
"Menu Costs and Phillips Curves,"
2004 Meeting Papers
144, Society for Economic Dynamics.
- Neiman, Brent, 2010. "Stickiness, synchronization, and passthrough in intrafirm trade prices," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 295-308, April.
- repec:pri:cepsud:211schoenle is not listed on IDEAS
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