Price Rigidity and Flexibility: New Empirical Evidence

Levy, Daniel (2007): Price Rigidity and Flexibility: New Empirical Evidence.

Abstract

The marketplace, along with its price system, is the single most important institution in a western-style free enterprise economy. The ability of prices to adjust to changes in supply and demand conditions enables the market to function efficiently and lies behind the magical invisible hand mechanism. To the behaviour of prices and in particular to the ability of prices to adjust to changes in market conditions, therefore, have fundamental implications for many key issues in many areas of both microeconomics as well as macroeconomics. It is, therefore, critical to study and understand whether there are barriers to price adjustments, what are the nature of these barriers, how the barriers lead to price rigidity, what are possible implications of these rigidities, etc. This introductory essay briefly summarizes the fourteen empirical studies of price rigidity that are included in this special issue.

• Item Type: MPRA Paper
• Institution: Bar-Ilan University
• Language: English
• Keywords: Price Rigidity; Price Flexibility; Cost of Price Adjustment; Menu Cost; Managerial and Customer Cost of Price Adjustment; Pricing; Price System; Price Setting; New Keynesian Economics; Store-Level Data; Micro-Level Data
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M30 - General; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M20 - General; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices

References

REFERENCES

Axarloglou K. 2007. Thick markets, market competition and pricing dynamics: evidence from retailers. Managerial and Decision Economics, this issue. Bahadir-Lust S, Loy J.P, Weiss C. 2007. Are they always offering the lowest price? An empirical analysis of the persistence of price dispersion in a low inflation environment. Managerial and Decision Economics, this issue. Barsky R., Bergen M, Dutta S, Levy D. 2003. What can the price gap between branded and private label products tell us about markups. In Scanner Data and Price Indexes, edited by Robert Feenstra and Matthew Shapiro, NBER (Studies in Income and Wealth, Volume 64), Chicago, IL: the University of Chicago Press, 2003, pp. 165–225. Bergen M, Ritson M, Dutta S, Levy D, Zbaracki M. 2003. Shattering the myth of costless price changes. European Management Journal 21: 663–669. Blinder, AS, Canetti ERD, Lebow DE, Rudd JB. 1998. Asking About Prices: A New Approach to Understanding Price Stickiness. Russell Sage Foundation: New York, NY. Carlton D. 1983. Equilibrium fluctuations when price and delivery lag clear the market. Bell Journal of Economics 14: 562–572. Carlton D. 1985. Delivery lags as a determinant of demand. Unpublished manuscript. Carlton D. 1986. The Rigidity of prices. American Economic Review 76: 637–658. Chakrabarti R, Scholnick B. 2007. The mechanics of price adjustment: new evidence on the (un)importance of menu costs. Managerial and Decision Economics, this issue. Davis M. 2007. The dynamics of daily retail gasoline prices. Managerial and Decision Economics, this issue. Dutta S, Bergen M, Levy D, Venable R. 1999. Menu costs, posted prices, and multiproduct retailers. Journal of Money, Credit, and Banking 31: 683–703. Dutta S, Levy D, Bergen M. 2002. Price flexibility in channels of distribution: Evidence from scanner data. Journal of Economic Dynamics and Control 26: 1845–1900. Fengler M, Winter J. 2007. Price variability and price dispersion in a stable monetary environment: evidence from German retail markets. Managerial and Decision Economics, this issue. Hicks M. 2007. Hierarchical delays as a source of nominal price rigidities: evidence from the microcomputer industry. Managerial and Decision Economics, this issue. Kauffman R, Wood C. 2007. Follow the leader: price change timing in internet-based selling. Managerial and Decision Economics, this issue. Kashyap A. 1995. Sticky prices: new evidence from retail catalogues. Quarterly Journal of Economics 110: 245–274. Lach S, Tsiddon D. 1992. The behaviour of prices and inflation: an empirical analysis of disaggregated data. Journal of Political Economy 100: 349–389. Lach S, Tsiddon D. 1996. Staggering and synchronization in price setting: evidence from multiproduct firms. American Economic Review 86: 1175–96. Lach S, Tsiddon D. 2007. Small price changes and menu costs. Managerial and Decision Economics, this issue. Levy D (ed.). 2006. Managerial and Decision Economics, a special issue on "Price Rigidity and Flexibility: Recent Theoretical Developments," forthcoming. Levy D, Bergen M, Dutta S, Venable R. 1997. The magnitude of menu costs: direct evidence from large U.S. supermarket chains. Quarterly Journal of Economics 112: 791–825. Levy D, Chen H, Ray S, Bergen M. 2005. Asymmetric price adjustment in the small. Bar-Ilan University and Emory University Working Paper. Levy D, Dutta S, Bergen M. 2002. Heterogeneity in price rigidity: evidence from a case study using micro-level data. Journal of Money, Credit and Banking 34: 197–220. Levy D, Dutta S, Bergen M, Venable R. 1998. Price adjustment at multiproduct retailers. Managerial and Decision Economics 19: 81–120. Levy D, Müller G, Dutta S, Bergen M. 2005. Holiday period price rigidity and cost of price adjustment. Bar-Ilan University and Emory University Working Paper. Levy D, Smets F. (ed.). 2007. Managerial and Decision Economics, a special issue on "Price Setting and Price Adjustment in European Union Countries," forthcoming. Levy D, Young A. 2004. The real thing: nominal price rigidity of the nickel coke, 1886–1959. Journal of Money, Credit and Banking 36: 765–799. Mankiw NG, Romer D (ed.). 1991a. New Keynesian Economics, Volume 1, Imperfect Competition and Sticky Prices. The MIT Press: Cambridge, MA. Mankiw NG, Romer D (ed.). 1991b. New Keynesian Economics, Volume 2, Coordination Failures and Real Rigidities. The MIT Press: Cambridge, MA. Müller G, Bergen M, Dutta S, Levy D. 2006. Private label price rigidity during holiday periods. Applied Economics Letters 13: 57–62. Müller G, Bergen M, Dutta S, Levy D. 2007. Holiday non-price rigidity and cost of adjustment. Managerial and Decision Economics, this issue. Müller, G, Ray S. 2007. Asymmetric price adjustment: evidence from weekly product-level scanner price data. Managerial and Decision Economics, this issue. Peltzman S. 2000. Prices rise faster than they fall. Journal of Political Economy 108: 466–502. Rátfai A. 2007. The frequency and size of price adjustment: microeconomic evidence. Managerial and Decision Economics, this issue. Ray S, Chen H, Bergen M, Levy D. 2006. Asymmetric wholesale pricing: theory and evidence. Marketing Science 25: 131–154. Sheshinski E, Weiss Y (ed.). 1993. Optimal Pricing, Inflation, and the Cost of Price Adjustment. The MIT Press: Cambridge, MA. Toolsema L, Jacobs J. 2007. Why do prices rise faster than they fall? With an application to mortgage rates. Managerial and Decision Economics, this issue. Weber S., Anders S. 2007. Price rigidity and market power in German retailing. Managerial and Decision Economics, this issue. Young A, Blue A. Retail prices during a change in monetary regimes: evidence from Sears, Roebuck catalogues, 1938–1951. Managerial and Decision Economics, this issue. Young A, Levy D. 2006. Explicit evidence on an implicit contract. Bar-Ilan University and Emory University Working Paper. Zbaracki M, Bergen M, Levy D. 2006. The anatomy of a price cut: discovering organizational sources of the costs of price adjustment. Bar-Ilan University and Emory University Working Paper. Zbaracki M, Ritson M, Levy D, Dutta S, Bergen M. 2004. Managerial and customer costs of price adjustment: direct evidence from industrial markets. Review of Economics and Statistics 86: 514–533.