Quantity Adjustment Costs and Price Rigidity

1998 ◽  
Author(s):  
Per Svejstrup Hansen
Keyword(s):  
Adjustment Costs ◽  
Price Rigidity ◽  
Quantity Adjustment

Price Rigidity and Strategic Uncertainty

2011 ◽  
Vol 3 (4) ◽  
pp. 57-69
Author(s):  
Robert Somogyi ◽  
János Vincze
Keyword(s):  
Negative Relationship ◽  
Adjustment Costs ◽  
Real Data ◽  
Decision Makers ◽  
Adjustment Cost ◽  
Price Rigidity ◽  
Pricing Strategies ◽  
Strategic Uncertainty ◽  
Agent Based ◽  
Physical Adjustment

The phenomenon of infrequent price changes has troubled economists for decades. Intuitively one feels that for most price-setters there exists a range of inaction, i.e., a substantial measure of the states of the world, within which they do not wish to modify prevailing prices. Economists wishing to maintain rationality of price-setters resorted to fixed price adjustment costs as an explanation for price rigidity. This paper proposes an alternative explanation, without recourse to any sort of physical adjustment cost, by putting strategic interaction into the center-stage of the analysis. Price-making is treated as a repeated oligopoly game. The traditional analysis of these games cannot pinpoint any equilibrium as a reasonable “solution” of the strategic situation. Thus, decision-makers have a genuine strategic uncertainty about the strategies of other decision-makers. Hesitation may lead to inaction. To model this situation, the authors follow the style of agent-based models, by modeling firms that change their pricing strategies following an evolutionary algorithm. In addition to reproducing the known negative relationship between price rigidity and the level of general inflation, the model exhibits several features observed in real data. Moreover, most prices fall into the theoretical “range” without explicitly building this property into strategies.

Price Rigidity and Strategic Uncertainty

2012 ◽  
pp. 207-219
Author(s):  
Robert Somogyi ◽  
János Vincze
Keyword(s):  
Negative Relationship ◽  
Adjustment Costs ◽  
Real Data ◽  
Decision Makers ◽  
Adjustment Cost ◽  
Price Rigidity ◽  
Strategic Uncertainty ◽  
Agent Based ◽  
The World ◽  
Physical Adjustment

The phenomenon of infrequent price changes has troubled economists for decades. Intuitively one feels that for most price-setters there exists a range of inaction, i.e., a substantial measure of the states of the world, within which they do not wish to modify prevailing prices. Economists wishing to maintain rationality of price-setters resorted to fixed price adjustment costs as an explanation for price rigidity. This paper proposes an alternative explanation, without recourse to any sort of physical adjustment cost, by putting strategic interaction into the center-stage of the analysis. Price-making is treated as a repeated oligopoly game. The traditional analysis of these games cannot pinpoint any equilibrium as a reasonable “solution” of the strategic situation. Thus, decision-makers have a genuine strategic uncertainty about the strategies of other decision-makers. Hesitation may lead to inaction. To model this situation, the authors follow the style of agent-based models, by modeling firms that change their pricing strategies following an evolutionary algorithm. In addition to reproducing the known negative relationship between price rigidity and the level of general inflation, the model exhibits several features observed in real data. Moreover, most prices fall into the theoretical “range” without explicitly building this property into strategies.

On adjustment costs and price and quantity adjustment

1996 ◽  
Vol 24 (3) ◽  
pp. 260-260
Author(s):  
Christoph R. Weiss
Keyword(s):  
Adjustment Costs ◽  
Quantity Adjustment

Quantity adjustment costs and price stickiness

1991 ◽  
Vol 36 (2) ◽  
pp. 121-125 ◽  
Author(s):  
Victor Ginsburgh ◽  
Philippe Michel ◽  
Philippe Moës
Keyword(s):  
Adjustment Costs ◽  
Price Stickiness ◽  
Quantity Adjustment

Adjustment costs and price and quantity adjustment

1995 ◽  
Vol 47 (3-4) ◽  
pp. 343-349 ◽  
Author(s):  
Torben M. Andersen
Keyword(s):  
Adjustment Costs ◽  
Quantity Adjustment

Competition Policy under Economic Crisis

2009 ◽  
pp. 54-69 ◽  
Author(s):  
A. Shastitko ◽  
S. Avdasheva ◽  
S. Golovanova
Keyword(s):  
Division Of Labor ◽  
Economic Crisis ◽  
Industrial Policy ◽  
Competition Policy ◽  
Transition Economy ◽  
Economic Recession ◽  
Price Rigidity ◽  
Key Factor ◽  
Policy Measures ◽  
The Impact

The analysis of competition policy under economic crisis is motivated by the fact that competition is a key factor for the level of productivity. The latter, in its turn, influences the scope and length of economic recession. In many Russian markets buyers' gains decline because of the weakness of competition, since suppliers are reluctant to cut prices in spite of the decreasing demand. Data on prices in Russia and abroad in the second half of 2008 show asymmetric price rigidity. At least two questions are important under economic crisis: the 'division of labor' between pro-active and protective tools of competition policy and the impact of anti-crisis policy on competition. Protective competition policy is insufficient in transition economy, especially in the days of crisis it should be supplemented with the well-designed industrial policy measures which do not contradict the goals of competition. The preferable tools of anti-crisis policy are also those that do not restrain competition.

The Micro and Macro of Managerial Beliefs

2020 ◽  
Author(s):  
Jose Maria Barrero
Keyword(s):  
Rational Expectations ◽  
Asset Price ◽  
Heterogeneous Firms ◽  
Adjustment Costs ◽  
Consumer Welfare ◽  
Sales Growth ◽  
Firm Level ◽  
Managerial Decisions ◽  
Managerial Beliefs ◽  
Growth Volatility

This paper studies how biases in managerial beliefs affect managerial decisions, firm performance, and the macroeconomy. Using a new survey of US managers I establish three facts. (1) Managers are not over-optimistic: sales growth forecasts on average do not exceed realizations. (2) Managers are overprecise (overconfident): they underestimate future sales growth volatility. (3) Managers overextrapolate: their forecasts are too optimistic after positive shocks and too pessimistic after negative shocks. To quantify the implications of these facts, I estimate a dynamic general equilibrium model in which managers of heterogeneous firms use a subjective beliefs process to make forward-looking hiring decisions. Overprecision and overextrapolation lead managers to overreact to firm-level shocks and overspend on adjustment costs, destroying 2.1 percent of the typical firm’s value. Pervasive overreaction leads to excess volatility and reallocation, lowering consumer welfare by 0.5 to 2.3 percent relative to the rational expectations equilibrium. These findings suggest overreaction may amplify asset-price and business cycle fluctuations.

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