Year: 2003
Type: report
Abstract: The menu-cost interpretation of sticky prices implies that the probability of a price change should depend on the past history of prices and fundamentals only through the gap between the current price and the frictionless price.We find that this prediction is broadly consistent with the behavior of 9 Philadelphia gasoline wholesalers.We nevertheless reject the menu-cost model as a literal description of these firms' behavior, arguing instead that price stickiness arises from strategic considerations of how customers and competitors will react to price changes.
DOI: 10.3386/w9741
Authors: Michael Davis, James Hamilton
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2154703264