Strategically delayed price adjustment in oligopoly and aggregated price dynamics

Markus Pasche ()
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Markus Pasche: Friedrich Schiller University Jena

No 2026-002, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: It is shown that staggered and sticky price adjustment is possible without ad hoc frictions, and without suspending full price flexibility. I consider an oligopoly with n price-setting firms which can strategically choose the timing of price decisions and thus the stage in a n-stage Stackelberg oligopoly game. After a shock, firms can credibly signal to delay their price adjustment for some time to (re-)establish a leader-follower structure. From the calculus behind this decision, it is derived which firm will adjust at which time and henceforth stage of the game. The delays are in general asymmetric with respect to direction and size of the shock, and they depend on market power, making the model consistent with a variety of empirical observations. Strategically delayed adjustment of firm prices implies also inertia in aggregated price level adjustment which plays a key role in macroeconomics.

Keywords: oligopoly; leader-follower structures; price dispersion; delayed price adjustment; cost shock; aggregated price dynamics; inflation (search for similar items in EconPapers)
JEL-codes: D21 D43 E31 L11 L16 (search for similar items in EconPapers)
Date: 2026-02-11
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