Rationally Inattentive Seller: Sales and Discrete Pricing
Filip Matejka
The Review of Economic Studies, 2016, vol. 83, issue 3, 1125-1155
Abstract:
Prices tend to remain constant for a period of time and then jump. In the literature, this "rigidity" is usually interpreted to reflect a cost of adjusting prices. This article shows that price rigidity can alternatively reflect optimal price setting when there are no adjustment costs, namely, if the seller is rationally inattentive. The model generates non-trivial pricing patterns that are consistent with the data and that are hard to explain with the traditional adjustment-cost model. In particular, prices are adjusted frequently but move back and forth between a few given values, hazard functions are downward sloping, and responses to persistent shocks are sluggish. These results are obtained in a model that implements rational inattention without simplifying assumptions on the functional forms of the processed signals.
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (15)
Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdv049 (application/pdf)
Access to full text is restricted to subscribers.
Related works:
Working Paper: Rationally Inattentive Seller: Sales and Discrete Pricing (2010) 
Working Paper: Rationally Inattentive Seller: Sales and Discrete Pricing (2010) 
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:oup:restud:v:83:y:2016:i:3:p:1125-1155.
Access Statistics for this article
The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman
More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().