Reversing the Keynesian Asymmetry In a Quasi-Competitive Industry with Menu Costs Nominal Prices are More Flexible Downwards than Upwards

John Bennet and Manfredi La Manna

CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: Menu-cost models that provide a theoretical underpinning for the "Keynesian asymmetry" whereby nominal prices are more flexible upward than downward consider relatively uncompetitive market structures (monopoly, oligopoly, monopolistic competition). We examine the effect of menu costs on a "quasi-competitive" industry (a Bertrand oligopoly with menu costs and free entry) and identify simple conditions under which the assymetry is reversed: nominal price becomes more flexible downward than upward. Our analysis suggests that, in the presence of menu costs, the pattern of nominal price adjustment is related to the form and extent of imperfect competion.

Keywords: adjustments; free-entry; Bertrand oligopoly (search for similar items in EconPapers)
JEL-codes: D43 (search for similar items in EconPapers)
Date: 2000-02
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:0018

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