The Rigidity of Prices

Dennis Carlton

American Economic Review, 1986, vol. 76, issue 4, 637-58

Abstract: This paper uses evidence on individual transaction prices to analyze price behavior. The evidence shows that, for many transactions, pricesremain rigid for periods exceeding one year. The rigidity of price ispositively correlated with industry concentration. For several productsthe correlation of price changes across buyers is low. The paper alsoinvestigates the relationship between price rigidity, price change, andthe length of time a buyer and seller have been doing business together. The author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets. Copyright 1986 by American Economic Association.

Date: 1986
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