Menu Costs, Entry Deterrence, and Nominal Rigidity

Jerzy Konieczny

Canadian Journal of Economics, 1994, vol. 27, issue 4, 827-46

Abstract: This paper studies, in a model of entry deterrence, conditions under which a small cost of changing nominal prices combined with a real rigidity leads to a large nominal rigidity. The entry deterrence environment, which generates the real rigidity, provides an appealing explanation as to why firms sometimes react to shocks by changing output instead of prices. As in Ball and Romer (1990), a large nominal rigidity arises with some parameter values; it is not, however, monotonically increasing as real prices become more rigid. The paper studies, in a model of entry deterrence, conditions under which a small cost of changing nominal prices combined with a real rigidity leads to a large nominal rigidity. The entry deterrence environment, which generates the real rigidity, provides an appealing explanation as to why firms sometimes react to shocks by changing output instead of prices. As in Ball and Romer (1990), a large nominal rigidity arises with some parameter values; it is not, however, monotonically increasing as real prices become more rigid.

Date: 1994
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://links.jstor.org/sici?sici=0008-4085%2819941 ... CEDAN%3E2.0.CO%3B2-G (text/html)
only available to JSTOR subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cje:issued:v:27:y:1994:i:4:p:827-46

Ordering information: This journal article can be ordered from
https://www.economic ... ionen/membership.php

Access Statistics for this article

Canadian Journal of Economics is currently edited by Zhiqi Chen

More articles in Canadian Journal of Economics from Canadian Economics Association Canadian Economics Association Prof. Werrner Antweiler, Treasurer UBC Sauder School of Business 2053 Main Mall Vancouver, BC, V6T 1Z2. Contact information at EDIRC.
Bibliographic data for series maintained by Prof. Werner Antweiler ().