Why Are Prices Sticky? The Dynamics of Wholesale Gasoline Prices / Michael C. Davis, James D. Hamilton.

By:

Davis, Michael C

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w9741.Publication details: Cambridge, Mass. National Bureau of Economic Research 2003.Description: 1 online resource: illustrations (black and white)Subject(s):

E3 - Prices, Business Fluctuations, and Cycles

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Abstract: The menu-cost interpretation of sticky prices implies that the probability of a price change should depend on the past history of prices and fundamentals only through the gap between the current price and the frictionless price. We find that this prediction is broadly consistent with the behavior of 9 Philadelphia gasoline wholesalers. We nevertheless reject the menu-cost model as a literal description of these firms' behavior, arguing instead that price stickiness arises from strategic considerations of how customers and competitors will react to price changes.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w9741 (Browse shelf(Opens below))	Not For Loan

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June 2003.

The menu-cost interpretation of sticky prices implies that the probability of a price change should depend on the past history of prices and fundamentals only through the gap between the current price and the frictionless price. We find that this prediction is broadly consistent with the behavior of 9 Philadelphia gasoline wholesalers. We nevertheless reject the menu-cost model as a literal description of these firms' behavior, arguing instead that price stickiness arises from strategic considerations of how customers and competitors will react to price changes.