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Dynamic Price Adjustment Under Imperfect Competition

  • Curtis Eberwein

    (McGill University)

  • Ted To

    (University of Warwick)

Registered author(s):

We study dynamic price adjustment under imperfect competition when consumers have non-time-separable preferences. In our model an intertemporal link arises in the consumers' maximization problems because current consumption decisions affect the utility of future consumption. Thus future demand depends on the current price and firms must take this into account when making their decisions. The main result is that equilibrium prices follow a dynamic stochastic process in which the current price depends on past prices and on random disturbances. The convergence of prices to the `long run expected price' is monotonic if current and future consumption are substitutes and oscillatory if they are complements.

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Paper provided by EconWPA in its series Industrial Organization with number 9803002.

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Length: 26 pages
Date of creation: 16 Mar 1998
Date of revision:
Handle: RePEc:wpa:wuwpio:9803002
Note: Type of Document - Tex generated DVI file; prepared on IBM PC - mikTeX; to print on any; pages: 26 ; figures: none
Contact details of provider: Web page: http://econwpa.repec.org

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  9. repec:nbr:nberre:0126 is not listed on IDEAS
  10. Kahn, Charles M, 1986. "The Durable Goods Monopolist and Consistency with Increasing Costs," Econometrica, Econometric Society, vol. 54(2), pages 275-94, March.
  11. Fethke, Gary & Policano, Andrew, 1986. "Will Wage Setters Ever Stagger Decisions? [Wage Contingencies, the Pattern of Negotiation and Aggregate Implications of Alternative Contract Structures]," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 867-77, November.
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  18. D. W. Carlton, 1976. "Market Behavior With Demand Uncertainty and Price Inflexibility," Working papers 179, Massachusetts Institute of Technology (MIT), Department of Economics.
  19. Klemperer, Paul, 1992. "Competition When Consumers Have Switching Costs: An Overview," CEPR Discussion Papers 704, C.E.P.R. Discussion Papers.
  20. Kenneth A. Froot & Paul Klemperer, 1988. "Exchange Rate Pass-Through When Market Share Matters," NBER Working Papers 2542, National Bureau of Economic Research, Inc.
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  25. To, Theodore, 1996. "Multi-period Competition with Switching Costs: An Overlapping Generations Formulation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 81-87, March.
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  27. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
  28. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
  29. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
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