The Relative Rigidity of Monopoly Pricing

Julio Rotemberg and Garth Saloner

American Economic Review, 1987, vol. 77, issue 5, 917-26

Abstract: This paper seeks to explain why monopolies keep their nominal prices constant for longer periods than do tight oligopolies. The authors show that cost changes create a larger incentive for duopolists to change their prices, while demand changes tend to have a greater effect on a monopolist. When both costs and demand are affected by small changes in the overall price level, the cost effect dominates. In the presence of a small fixed cost of changing prices, therefore, duopolists change their prices in response to smaller perturbations in underlying conditions. Copyright 1987 by American Economic Association.

Date: 1987
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Working Paper: The Relative Rigidity of Monopoly Pricing (1986)
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