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Variable Price Adjustment Costs

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  • Konieczny, Jerzy D

Abstract

The fixed (menu) cost approach has been criticized since administrative costs of price changes are small. This paper studies costs that depend on the size or the frequency of adjustment. The optimal pricing policy is similar to that in the menu cost model which is, therefore, a simple benchmark case. While recent empirical evidence implies rejection of the fixed cost model, it is consistent with the general specification used here. The analysis strongly suggests that nominal inflexibilities at the individual level are not due to administrative costs but result from unfavorable market response to price changes. Copyright 1993 by Oxford University Press.

Suggested Citation

  • Konieczny, Jerzy D, 1993. "Variable Price Adjustment Costs," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 488-498, July.
    • Handle: RePEc:oup:ecinqu:v:31:y:1993:i:3:p:488-98
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    Cited by:

    1. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 2008 - 2015 380, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Davis, Michael C & Hamilton, James D, 2004. "Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 17-37, February.
    3. Levy, Daniel & Snir, Avichai & Gotler, Alex & Chen, Haipeng (Allan), 2020. "Not all price endings are created equal: Price points and asymmetric price rigidity," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    4. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Paper series 17_11, Rimini Centre for Economic Analysis.
    5. Watanabe, Makoto, 2008. "Inflation, price competition, and consumer search technology," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3780-3806, December.
    6. Xin Chen & Sean X. Zhou & Youhua (Frank) Chen, 2011. "Integration of Inventory and Pricing Decisions with Costly Price Adjustments," Operations Research, INFORMS, vol. 59(5), pages 1144-1158, October.
    7. Attila Rátfai, 2007. "The frequency and size of price adjustment: microeconomic evidence," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 751-762.

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