Transaction-Cost Influences on the Adjustment of Industries' Prices and Outputs

Ralph Bradburd and Richard E Caves

The Review of Economics and Statistics, 1987, vol. 69, issue 4, 575-83

Abstract: Short-run adjustments of prices and outputs in producer-goods industries should reflect suppliers' continuing quasi-contractual relationships with their industrial customers. The authors test hypotheses about these relationships by analyzing cross-section determinants of time-series coefficients showing the rates of adjustment of industries' prices and outputs to movements of demand (inferred from customers' outputs). They confirm that price adjustments decrease with the bases for "sticky" relations with customers; the sensitivity of quantity adjustments increases with those bases and decreases with suppliers' own adjustment costs. They also confirm the standard hypothesis that price flexibility decreases with producer concentration. Copyright 1987 by MIT Press.

Date: 1987
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