Business as usual: A consumer search theory of sticky prices and asymmetric price adjustment

Arbeitspapier

Empirical evidence suggests that prices are sticky with respect to cost changes. Moreover, prices respond more rapidly to cost increases than to cost decreases. We develop a search theoretic model which is consistent with this evidence and allows for additional testable predictions. Our results are based on the assumption that buyers do not observe the sellers costs, but know that cost changes are positively correlated across sellers. In equilibrium, a change in price is likely to induce consumer search, which explains sticky prices. Moreover, the signal conveyed by a price decrease is different from the signal conveyed by a price increase, which explains asymmetry in price adjustment.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2011-01

Classification and Topics

• Classification: Wirtschaft
• Subject: Preisrigidität ; Anpassungskosten ; Preismanagement ; Konsumentenverhalten ; Informationskosten ; Suchtheorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cabral, Luís ; Fishman, Arthur
• Event: Veröffentlichung
• (who): Bar-Ilan University, Department of Economics
• (where): Ramat-Gan
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/96067
• Last update: 10.03.2025, 11:42 AM CET