IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1813.html
   My bibliography  Save this paper

The Rigidity of Prices

Author

Listed:
  • Dennis W. Carlton

Abstract

This paper presents evidence on the amount of price rigidity that exists in individual transaction prices. Using the Stigler-Kindahi data, I examine the behavior of individual buyers' prices for certain products used in manufacturing. My most important findings are: 1.The degree of price rigidity in many industries is significant. It is not unusual in some industries for prices to individual buyers to remain unchanged for several years. 2.Even for what appear to be homogeneous commodities, the correlation of price changes across buyers is very low. 3.There is no evidence that there is an asymmetry in price rigidity. In particular, prices are not rigid down-ward. 4.The fixed costs of changing price at least to some buyers seem trivial. There are plenty of instances where small price changes occur. 5.The level of industry concentration is strongly correlated with rigid prices. The more concentrated the industry, the longer is the average spell of price rigidity. 6.There appears to be a relationship between price rigidity, size of price change, and the length of time a buyer and seller deal with each other.I interpret the findings as evidence that it is erroneous to focus attention on price as the exclusive mechanism to allocate resources. Nonprice rationing is not a fiction, it is a reality of business and may be the efficient response to economic uncertainty.

Suggested Citation

  • Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1813
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1813.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Frederick C. Mills, 1927. "Introduction to "The Behavior of Prices"," NBER Chapters, in: The Behavior of Prices, pages 31-36, National Bureau of Economic Research, Inc.
    2. Carlton, Dennis W, 1979. "Contracts, Price Rigidity, and Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1034-1062, October.
    3. Robert J. Barro, 1972. "A Theory of Monopolistic Price Adjustment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 39(1), pages 17-26.
    4. Frederick C. Mills, 1927. "The Behavior of Prices," NBER Books, National Bureau of Economic Research, Inc, number mill27-1, June.
    5. Frederick C. Mills, 1927. "Appendix to "The Behavior of Prices"," NBER Chapters, in: The Behavior of Prices, pages 441-586, National Bureau of Economic Research, Inc.
    6. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emi Nakamura & Jón Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 133-163, May.
    2. Emi Nakamura & Jón Steinsson & Patrick Sun & Daniel Villar, 2018. "The Elusive Costs of Inflation: Price Dispersion during the U.S. Great Inflation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 1933-1980.
    3. Kovenock, Dan & Widdows, Kealoha, 1998. "Price leadership and asymmetric price rigidity," European Journal of Political Economy, Elsevier, vol. 14(1), pages 167-187, February.
    4. Pinelopi Goldberg & Rebecca Hellerstein, 2009. "How Rigid Are Producer Prices?," Working Papers 1184, Princeton University, Department of Economics, Center for Economic Policy Studies..
    5. Carlton, Dennis W., 1989. "The theory and the facts of how markets clear: Is industrial organization valuable for understanding macroeconomics?," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 15, pages 909-946, Elsevier.
    6. Maarten Dossche, 2009. "Understanding Inflation Dynamics.Where Do We Stand?," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(2), pages 209-227.
    7. Juan Jiménez & Jordi Perdiguero, 2012. "Does Rigidity of Prices Hide Collusion?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(3), pages 223-248, November.
    8. Khan, Muhammad, 2016. "Evidence on the functional form of inflation and output growth variability relationship in European economies," International Economics, Elsevier, vol. 146(C), pages 1-11.
    9. Pinelopi K. Goldberg & Rebecca Hellerstein, 2009. "How rigid are producer prices?," Staff Reports 407, Federal Reserve Bank of New York.
    10. Alan Kackmeister, 2007. "Yesterday's Bad Times Are Today's Good Old Times: Retail Price Changes Are More Frequent Today Than in the 1890s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1987-2020, December.
    11. Menezes, Flavio M. & Quiggin, John, 2022. "Market power amplifies the price effects of demand shocks," Economics Letters, Elsevier, vol. 221(C).
    12. Michael Aarstol, 1999. "Inflation, Inflation Uncertainty, and Relative Price Variability," Southern Economic Journal, John Wiley & Sons, vol. 66(2), pages 414-423, October.
    13. Cleomar Gomes da Silva & Gilberto O. Boaretto, 2018. "Inflation and Relative Price Variability in Brazil: A Time-Varying Parameter Approach," Economics Bulletin, AccessEcon, vol. 38(4), pages 1947-1956.
    14. Bryce Kanago, 2023. "The Comovement Between Forecast Errors for Real GDP and Its Deflator in Six OECD Countries: Did Supply Shocks Become Less Dominant During the Great Moderation?," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 19(2), pages 149-169, September.
    15. Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 132-152, February.
    16. Chen, Bin & Hong, Yongmiao, 2014. "A unified approach to validating univariate and multivariate conditional distribution models in time series," Journal of Econometrics, Elsevier, vol. 178(P1), pages 22-44.
    17. Thilo A. Schmitt & Rudi Schafer & Holger Dette & Thomas Guhr, 2015. "Quantile Correlations: Uncovering temporal dependencies in financial time series," Papers 1507.04990, arXiv.org.
    18. Richard Davies, 2021. "Prices and inflation in the UK - A new dataset," CEP Occasional Papers 55, Centre for Economic Performance, LSE.
    19. Pierdomenico Duttilo, 2024. "Modelling financial returns with mixtures of generalized normal distributions," Papers 2411.11847, arXiv.org.
    20. Anish Goorah, 2007. "Real Estate Risk Management with Copulas," Journal of Property Research, Taylor & Francis Journals, vol. 24(4), pages 289-311, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1813. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.