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The Relative Rigidity of Monopoly Pricing

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  • Julio Rotemberg
  • Garth Saloner

Abstract

This paper seeks to explain why monopolies keep their nominal prices constant for longer periods than do tight oligopolies. We provide two possible explanations. The first is based on the presence of a small fixed cost of changing prices. The second, on small costs of discovering the optimal price. The incentive to change price for duopolists producing differentiated products exceeds that of a single monopolistic firm which produced the same tange of products as the duopoly.
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Suggested Citation

  • Julio Rotemberg & Garth Saloner, 1986. "The Relative Rigidity of Monopoly Pricing," Working papers 414, Massachusetts Institute of Technology (MIT), Department of Economics.
  • Handle: RePEc:mit:worpap:414
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    References listed on IDEAS

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    1. George A. Akerlof & Janet L. Yellen, 1985. "A Near-Rational Model of the Business Cycle, with Wage and Price Inertia," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 823-838.
    2. Olivier J. Blanchard & Nobuhiro Kiyotaki, 1985. "Monopolistic Competition, Aggregate Demand Externalities and Real Effects of Nominal Money," NBER Working Papers 1770, National Bureau of Economic Research, Inc.
    3. 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.
    4. Olivier J. Blanchard & Nobuhiro Kiyotaki, 1985. "Monopolistic Competition, Aggregate Externalities and real Effects of Nominal Money," Working papers 401, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
    6. Eytan Sheshinski & Yoram Weiss, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 287-303.
    7. Simon, Julian L, 1969. "A Further Test of the Kinky Oligopoly Demand Curve," American Economic Review, American Economic Association, vol. 59(5), pages 971-975, December.
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