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Strategically delayed price adjustment in oligopoly and aggregated price dynamics

Author

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  • Markus Pasche

    (Friedrich Schiller University Jena)

Abstract

It is shown that staggered and sticky price adjustment is possible without ad hoc frictions, and without suspending full price flexibility. I consider an oligopoly with n price-setting firms which can strategically choose the timing of price decisions and thus the stage in a n-stage Stackelberg oligopoly game. After a shock, firms can credibly signal to delay their price adjustment for some time to (re-)establish a leader-follower structure. From the calculus behind this decision, it is derived which firm will adjust at which time and henceforth stage of the game. The delays are in general asymmetric with respect to direction and size of the shock, and they depend on market power, making the model consistent with a variety of empirical observations. Strategically delayed adjustment of firm prices implies also inertia in aggregated price level adjustment which plays a key role in macroeconomics.

Suggested Citation

  • Markus Pasche, 2026. "Strategically delayed price adjustment in oligopoly and aggregated price dynamics," Jena Economics Research Papers 2026-002, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2026-002
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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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