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The Relative Rigidity of Monopoly Pricing

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  • Julio J. 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.

Suggested Citation

  • Julio J. Rotemberg & Garth Saloner, 1986. "The Relative Rigidity of Monopoly Pricing," NBER Working Papers 1943, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1943
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    1. Paul M. Sweezy, 1939. "Demand Under Conditions of Oligopoly," Journal of Political Economy, University of Chicago Press, vol. 47(4), pages 568-568.
    2. 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.
    3. 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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    5. 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.
    6. 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.
    7. George J. Stigler, 1947. "The Kinky Oligopoly Demand Curve and Rigid Prices," Journal of Political Economy, University of Chicago Press, vol. 55(5), pages 432-432.
    8. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
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