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Price Inflexibility in Markets with Repeat Purchasing


Sibly, HA, Price Inflexibility in Markets with Repeat Purchasing, Journal of Macroeconomics, 23, (3) pp. 459-475. ISSN 0164-0704 (2001) [Refereed Article]

DOI: doi:10.1016/S0164-0704(01)00173-2


This 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.

Item Details

Item Type:Refereed Article
Research Division:Economics
Research Group:Economic theory
Research Field:Macroeconomic theory
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Macroeconomics not elsewhere classified
UTAS Author:Sibly, HA (Dr Hugh Sibly)
ID Code:22932
Year Published:2001
Web of Science® Times Cited:3
Deposited By:Economics and Finance
Deposited On:2001-08-01
Last Modified:2002-05-09

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