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Price Inflexibility in Markets with Repeat Purchasing
journal contribution
posted on 2023-05-16, 13:13 authored by Sibly, HAThis paper develops an enduring idea: price rigidity occurs because repeat-purchasing customers in retail markets learn their regular firm's price at each purchase but are informed of other firms' prices less frequently. Although potentially having important implications for macroeconomics, previous attempts to formalize this argument in an intertemporal setting have failed to treat firms and customers as forward-looking, maximizing, agents. In contrast, this paper models the optimal response of firms and customers, both of whom have rational expectations, to a transitory demand shock. A specific set of assumptions sufficient to unambiguously generate relative price rigidity is revealed.
History
Publication title
Journal of MacroeconomicsVolume
23Pagination
459-475ISSN
0164-0704Department/School
TSBEPublisher
Louisiana State University PressPlace of publication
United States of AmericaRepository Status
- Restricted