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The (Q,S,s) Pricing Rule

Kenneth Burdett and Guido Menzio ()

Review of Economic Studies, 2018, vol. 85, issue 2, 892-928

Abstract: We introduce menu costs in the search-theoretic model of imperfect competition of Burdett and Judd. When menu costs are not too large, the equilibrium is such that sellers follow a (Q,S,s) pricing rule. According to the rule, a seller lets inflation erode the real value of its nominal price until it reaches some point $s$. Then, the seller pays the menu cost and resets the real value of its nominal price to a point randomly drawn from a distribution with support $[S,Q]$, where $sKeywords: Search frictions; Menu costs; Sticky prices (search for similar items in EconPapers)
Date: 2018
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Working Paper: (Q,S,s) Pricing Rules (2013) Downloads
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