Menu Costs and Dynamic Duopoly

Kazuko Kano

MPRA Paper from University Library of Munich, Germany

Abstract: Scrutinizing a state-dependent pricing model in the presence of menu costs and dynamic duopolistic interactions, this paper claims that the assumption about market structure is crucial for identifying menu costs for price changes. Prices in a dynamic duopoly market can be more rigid than those in more competitive markets such as monopolistically competitive one. If so, estimates of menu costs under monopolistic competitions are potentially biased upwards due to the price rigidity from strategic interactions between dynamic duopoly rms. Developing and estimating a dynamic discrete-choice model with duopoly to correct this potential bias, this paper provides empirical evidence that not only menu costs but also dynamic strategic interactions play an important role to explain the observed degree of price rigidity in data of weekly retail prices.

Keywords: Menu Cost; Dynamic Discrete Choice Game; Retail Price (search for similar items in EconPapers)
JEL-codes: D43 L13 L81 (search for similar items in EconPapers)
Date: 2011-12-14
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/38909/1/MPRA_paper_38909.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/42617/1/MPRA_paper_42617.pdf revised version (application/pdf)

Related works:
Journal Article: Menu costs and dynamic duopoly (2013)
Working Paper: Menu Costs and Dynamic Duopoly (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:38909

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