Optimally sticky prices: Foundations

L’Huillier, Jean-Paul and William Zame
Authors registered in the RePEc Author Service: Jean-Paul L'Huillier

Journal of Economic Dynamics and Control, 2022, vol. 141, issue C

Abstract: We propose a strategic microfoundation for sticky prices. We model an environment in which a firm has better information than its consumers and show that, when many consumers are uninformed, it is optimal for the firm to offer sticky contracts or sticky prices. We establish this result in a general mechanism design framework that allows for non-linear pricing and screening. A virtue of our microfoundation is that it is compatible with a dynamic general equilibrium model. We then discuss the implications of this microfounded friction for welfare.

Keywords: Sticky prices; Frictions; Pricing policies; Optimal mechanisms (search for similar items in EconPapers)
JEL-codes: E31 E40 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:141:y:2022:i:c:s0165188922001038

DOI: 10.1016/j.jedc.2022.104397

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