IDEAS home Printed from https://ideas.repec.org/p/red/sed011/749.html
   My bibliography  Save this paper

Rigid Pricing and Rationally Inattentive

Author

Listed:
  • Filip Matejka

    (CERGE-EI Prague)

Abstract

This paper proposes a mechanism leading to rigid pricing as an opti- mal strategy. It applies a framework of rational inattention to study the pricing strategies of a monopolistic seller facing a consumer with limited information capacity. The consumer needs to process information about prices, while the seller is perfectly attentive. It turns out that the seller chooses to price discretely even for a continuous range of unit input costs, i.e. charges a finite set of distinct prices only. The price usually stays constant when unit input cost changes only a little. The seller does so to provide the consumer with easily observable prices and thus stimulate her to consume more.

Suggested Citation

  • Filip Matejka, 2011. "Rigid Pricing and Rationally Inattentive," 2011 Meeting Papers 749, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:749
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2011/paper_749.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Sims, Christopher A., 2005. "Rational inattention: a research agenda," Discussion Paper Series 1: Economic Studies 2005,34, Deutsche Bundesbank.
    2. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    3. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
    4. Martin Eichenbaum & Nir Jaimovich & Sergio Rebelo, 2008. "Reference Prices and Nominal Rigidities," NBER Working Papers 13829, National Bureau of Economic Research, Inc.
    5. Ricardo Reis, 2006. "Inattentive Producers," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 793-821.
    6. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    7. Emi Nakamura & Jon Steinsson, 2005. "Price Setting in a Forward-Looking Customer Market," Macroeconomics 0509010, EconWPA.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marcin Kacperczyk & Jaromir B. Nosal & Luminita Stevens, 2014. "Investor Sophistication and Capital Income Inequality," NBER Working Papers 20246, National Bureau of Economic Research, Inc.
    2. S. Dupraz, 2017. "A Kinked-Demand Theory of Price Rigidity," Working papers 656, Banque de France.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed011:749. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.