Speed of Price Adjustment with Price Conjecture

Michael Olive ()
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Michael Olive: Department of Economics, Macquarie University

No 402, Research Papers from Macquarie University, Department of Economics

Abstract: We derive a measure of firm speed of price adjustment that is directly inversely related to market power and compare this to the measure derived by Martin (1993). However, both measures are incorrect when firms have non-zero price conjectural variations and treat competing price levels as exogenous. This is because Taylor series expansions of the demand function implicitly assume that firms influence the level of competing prices in a way that is consistent with their conjectures.

Keywords: Price adjustment; market power; conjectural variations (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 L16 (search for similar items in EconPapers)
Pages: 10 pages.
Date: 2004-03
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