 Dynamic Model for Market Competition and Price RigidityG. R. Chen Applied Economics, 2016, vol. 48, issue 36, 3485-3496 Abstract: This article presents a price floor model in which durability, unit costs and production period are factors in explaining price rigidity. This article elaborates that cost structure plays an essential role in resolving the inconclusive relationship between market concentration and price rigidity. When the industry is characterized by decreasing returns of scale, the degree of price flexibility decreases as market competition intensifies. The reverse is true when the industry exhibits increasing returns of scale. The factors that cause price rigidity also foster price adjustment asymmetry and price adjustment lag. During times of recession, the model exhibits upward price flexibility as costs increase, but downward price rigidity as costs decrease. Even under forward-looking expectations, the way in which firms adjust prices could look as though they have adaptive expectations. If price stickiness is a characteristic of market competition, then public policies determined by price level could be too drastic for firms in competitive markets. Date: 2016 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:48:y:2016:i:36:p:3485-3496 Ordering information: This journal article can be ordered from DOI: 10.1080/00036846.2016.1139681 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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