Lörtscher, Simon; Manz, Michael (June 2002). Information and Barometric Prices: An Explanation for Price Stickiness (Diskussionsschriften 02-06). Bern: Universität Bern Volkswirtschaftlicher Institut
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Price stickiness plays a decisive role in many macroeconomic models, yet why prices are sticky remains a puzzle. We develop a microeconomic model in which two competing firms are free to set prices, but face uncertainty about the state of demand. With some probability, there is a positive demand shock, which is observed but by one firm. In equilibrium, only the informed firm adjusts its price after the shock, while the uninformed firm raises its price only with a delay, after observing the price of its competitor. Hence, prices are sticky in the sense that one firmís price does not adjust immediately. Further, if getting information is costly, the model implies that the larger firm tends to be better informed and to adjust its price first.
Item Type: |
Working Paper |
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Division/Institute: |
03 Faculty of Business, Economics and Social Sciences > Department of Economics 03 Faculty of Business, Economics and Social Sciences > Department of Economics > Institute of Economics |
UniBE Contributor: |
Lörtscher, Simon |
Subjects: |
300 Social sciences, sociology & anthropology > 330 Economics |
Series: |
Diskussionsschriften |
Publisher: |
Universität Bern Volkswirtschaftlicher Institut |
Language: |
English |
Submitter: |
Aline Lehnherr |
Date Deposited: |
23 Apr 2020 10:48 |
Last Modified: |
05 Dec 2022 15:38 |
JEL Classification: |
L16, D43, D82 |
BORIS DOI: |
10.7892/boris.142915 |
URI: |
https://boris.unibe.ch/id/eprint/142915 |
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