Sticky prices as a coordination success

Kenneth Mischel

Atlantic Economic Journal, 1998, vol. 26, issue 2, 162-171

Abstract: Recent contributions have articulated ways in which price rigidities signal breakdowns of coordination. These contributions are aimed at unifying New Keynesian economics by linking the issue of nominal price flexibility with that of between-firm coordination. By contrast, this paper demonstrates that sticky prices can signal a coordination success rather than a coordination failure. A model is developed in which N firms face a stochastic industry demand and engage in (infinitely) repeated Bertrand competition. In each period, firms are able to learn the realization of the demand shock but at a positive cost. The existence of two equilibria—one featuring sticky prices and the other featuring flexible prices—is proved. These equilibria are then compared. The equilibrium featuring sticky prices Pareto-dominates that featuring the flexible ones. Copyright International Atlantic Economic Society 1998

Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1007/BF02299358 (text/html)
Access to full text is restricted to 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:kap:atlecj:v:26:y:1998:i:2:p:162-171

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11293/PS2

DOI: 10.1007/BF02299358

Access Statistics for this article

Atlantic Economic Journal is currently edited by Kathleen S. Virgo

More articles in Atlantic Economic Journal from Springer, International Atlantic Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().