Asking About Prices: A New Approach to Understanding Price Stickiness. Alan S. Blinder, Elie R. D. Canetti, David F. Lebow, and Jeremy B. Rudd.

Asking About Prices: A New Approach to Understanding Price Stickiness. Alan S. Blinder, Elie R.... 98 BOOK REVIEW so useful for macroeconomics include a number of results of particular significance for microeconomics. Hence this review. What are the theories which macroeconomists have proposed as reasons for price stickiness? The authors identify twelve as of 1988, all micro, all from macro- economists’ attempts to answer the question why prices are sticky. The theories, briefly: Table I. 1. “Nominal contracts” “Prices are fixed by [written] contracts” which last for a significant period 2. “Implicit contracts” Absent written contracts, “firms tacitly agree to stabilize prices”, a ` la Okun 3. “Judging quality by price” Price cuts might signal quality reductions to customers 4. “Pricing points” Some “psychological significance” attaches to certain prices “like $9.99” 5. “Procyclical elasticity” “Demand curves become less elastic as they shift in” 6. “Cost-based pricing” An increase in costs is reflected in increased prices but with “delays” as price changes move “through a multi-stage production process” 7. “Constant MC” A constant markup over a flat MC, hence price changes are infrequent, even though demand shifts. 8. “Costly price adjustment” Price changes themselves incur costs (called “menu costs”) 9. “Hierarchy” Internal layers of management bureaucracy impose delays in decision making 10. “Coordination failure” “Firms http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Asking About Prices: A New Approach to Understanding Price Stickiness. Alan S. Blinder, Elie R. D. Canetti, David F. Lebow, and Jeremy B. Rudd.

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007858331569
Publisher site
See Article on Publisher Site

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