Menu Costs and Dynamic Duopoly

Kazuko Kano

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: Examining a state-dependent pricing model in the presence of menu costs and dynamic duopolistic interactions, this paper claims that the assumption regarding market structure is crucial for iden- tifying the menu costs for price changes. Prices in a dynamic duopolistic market can be more rigid than those in more competitive markets, such as a monopolistic-competition market. Therefore, the estimates of menu costs under monopolistic competition are potentially biased upward due to the price rigidity from strategic interactions between dynamic duopolistic firms. By developing and estimating a dynamic discrete-choice model with duopoly to correct for this potential bias, this paper provides empirical evidence that dynamic strategic interactions, as well as menu costs, play an important role in explaining the observed degree of price rigidity in weekly retail prices.

Keywords: Menu Costs; Dynamic Discrete Choice Game; Retail Price (search for similar items in EconPapers)
JEL-codes: D43 L13 L81 (search for similar items in EconPapers)
Date: 2012-12
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Related works:
Journal Article: Menu costs and dynamic duopoly (2013)
Working Paper: Menu Costs and Dynamic Duopoly (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hst:ghsdps:gd12-263

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