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Sychronization and Staggering in a Model of State-Dependent Pricing

Alexander Wolman () and A. Andrew John

No 456, Computing in Economics and Finance 2005 from Society for Computational Economics

Abstract: We investigate the possibility of synchronized and staggered equilibria in a version of the Dotsey-King-Wolman state-dependent pricing model. Our paper contributes to a large literature that considers synchronization of price changes (see, for example, Ball and Cecchetti [1988], Ball and Romer [1989], Caminal [1991], Lau [2001], Bhaskar [2002]). Models in this literature typically assume that firms engage in time-dependent pricing, changing their prices at fixed intervals, but choose the timing of adjustment relative to other firms. In this class of models, synchronization is usually an equilibrium, and much research has been devoted to understanding the circumstances under which a staggering equilibrium may also emerge. In our model, steady state equilibria involve staggering. We search for two-cycle equilibria (pure synchronization is a special case), but find that they are unlikely to arise in our setting. An important part of the explanation for this result is that, in general equilibrium, an individual firm's adjustment decision is not very responsive to changes in the adjustment decisions of other firms

JEL-codes: C62 E3 (search for similar items in EconPapers)
Date: 2005-11-11
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