Can small menu costs explain sticky prices?

Arthur Fishman, Avi Simhon

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

We develop a model in which even very small adjustment costs can lead to substantive price rigidity. We show that, facing a cost increasing shock, if firms expect competitors to keep prices unchanged, price rigidity may be a self-fulfilling prophesy.

Original languageEnglish
Pages (from-to)227-230
Number of pages4
JournalEconomics Letters
Volume87
Issue number2
DOIs
StatePublished - May 2005

Keywords

  • Coordination failure
  • Price rigidity
  • Search
  • Small menu costs

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