Review of Industrial Organization 15: 97–101, 1999.
Asking About Prices: A New Approach to Understanding Price Stickiness. Alan S.
Blinder, Elie R. D. Canetti, David F. Lebow, and Jeremy B. Rudd. Russell
Sage Foundation, 1998, 380 pages, $34.95.
The stickiness of wage rates and product prices has played a central role in macro-
economics at least since the General Theory. Can the economy “be modeled on
a giant auction hall with perfectly ﬂexible prices”? Not likely: wages and prices
do not adjust rapidly to macro shocks; they adjust “slowly”. Try as they might,
macroeconomists know little about the sticky micro foundation – presuming that
prices and wages are really sticky (and compared with what?), why are they sticky?
Theories abound about the reasons, yet standard empirical techniques have been
unsuccessful in separating the good theories from the bad, at least partly because
some necessary variables are unobservable, e.g., Okun’s implicit contracts. The
issue is important; without wage and price stickiness, macroeconomics is back in
the pre-1936 neoclassical world. Asking About Prices probes for answers to Why?
Alan Blinder and his colleagues, Elie Canetti and David Lebow of Princeton,
Jeremy Rudd of the Fed, and a dozen graduate students, have traveled a non-
econometric route: they asked market participants, 200 business executives know-
ledgeable about pricing processes in their own ﬁrms, questions which allowed the
investigators to evaluate the relative importance of an even dozen theoretical rea-
sons, all from recent macro literature, why price stickiness exists. (Wage stickiness
was not pursued.) The interview technique has a long and perhaps shady past, and
it has unfortunately fallen into disuse if not disrepute among economists. Earlier
interview studies on pricing include those by Hall and Hitch; Kaplan, Dirlam, and
Lanzillotti; Fog (in Denmark); Earlie; and Smiley. The technique has thus not gone
unused, but the results rest on questionable methodology, and the conclusions have
not been distinct. In any case these earlier studies were not intended to reveal
reasons for stickiness; instead they investigated procedures used to set prices. Yet
these earlier studies convinced Blinder that a carefully constructed set of questions,
asked uniformly and face-to-face (not mailed) of a well chosen set of business
ﬁrms, could produce “interesting ideas”. (The quotations throughout this review are
from this volume.) The interview technique in those skilled hands succeeds very
well in illuminating stickiness and reasons for it. Moreover, the survey’s answers