Pricing to Market versus Menu Costs: Do They Really Conflict?

Yunus Aksoy

No 257, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: This paper deals with the long lasting debate on the exchange rate shocks and price adjustments in a dynamic programming framework. We present a framework where firms face menu costs when they decide change their prices in a competitive environment. The main result of the paper is that band of inaction of price changes to exchange rate shocks widens the more competitive a domestic market is. This is a complementary result to both menu cost and Pricing to market debate. We argue that both arguments are correct and do not exclude eachother. Empirical evidence from magazines market is discussed.

Date: 2000-08-01
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:wc2000:0257

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