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Menu Costs and Dynamic Duopoly

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  • Kano, Kazuko

Abstract

Scrutinizing a state-dependent pricing model in the presence of menu costs and dynamic duopolistic interactions, this paper claims that the assumption about market structure is crucial for identifying menu costs for price changes. Prices in a dynamic duopoly market can be more rigid than those in more competitive markets such as monopolistically competitive one. If so, estimates of menu costs under monopolistic competitions are potentially biased upwards due to the price rigidity from strategic interactions between dynamic duopoly rms. Developing and estimating a dynamic discrete-choice model with duopoly to correct this potential bias, this paper provides empirical evidence that not only menu costs but also dynamic strategic interactions play an important role to explain the observed degree of price rigidity in data of weekly retail prices.

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  • Kano, Kazuko, 2011. "Menu Costs and Dynamic Duopoly," MPRA Paper 38909, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38909
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    References listed on IDEAS

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    Cited by:

    1. repec:cje:issued:v:50:y:2017:i:5:p:1445-1488 is not listed on IDEAS
    2. Victor Aguirregabiria & Jiaying Gu & Yao Luo, 2018. "Sufficient Statistics for Unobserved Heterogeneity in Structural Dynamic Logit Models," Papers 1805.04048, arXiv.org.
    3. Brent, Neiman, 2011. "A state-dependent model of intermediate goods pricing," Journal of International Economics, Elsevier, vol. 85(1), pages 1-13, September.
    4. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1445-1488, December.
    5. Simon Mongey, 2017. "Market Structure and Monetary Non-Neutrality," 2017 Meeting Papers 184, Society for Economic Dynamics.
    6. repec:eee:jomega:v:75:y:2018:i:c:p:13-26 is not listed on IDEAS

    More about this item

    Keywords

    Menu Cost; Dynamic Discrete Choice Game; Retail Price;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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