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The dynamics of durable goods markets: rational expectations and sticky prices

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  • Ocaña Pérez de Tudela, Carlos

Abstract

This paper studies price dynamics in a durable good market under the assumption that consumers have rational expectations on future prices. For a wide variety of expectations, optimal consumption plans result in sticky-price demand functions. Market dynamics are characterized by intertemporal price discrimination which provides a possible explanation for the declining path of price observed in many "young" industries. Unexpected shocks on demand result in price overshooting, while unexpected supplyshocks have the opposite effect on price.

Suggested Citation

  • Ocaña Pérez de Tudela, Carlos, 1991. "The dynamics of durable goods markets: rational expectations and sticky prices," UC3M Working papers. Economics 2797, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:2797
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    References listed on IDEAS

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    1. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    2. Fershtman, Chaim & Kamien, Morton I, 1987. "Dynamic Duopolistic Competition with Sticky Prices," Econometrica, Econometric Society, vol. 55(5), pages 1151-1164, September.
    3. Nancy L. Stokey, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(3), pages 355-371.
    4. A. M. Spence, 1981. "The Learning Curve and Competition," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 49-70, Spring.
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    Keywords

    Durable Goods;

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