American Economic Review Vol. 77 No. 5 1987
The Relative Rigidity of Monopoly Pricing
Abstract
This paper examines why monopolies change their normal prices less often than do tight oligopolies. We show that cost (demand) changes create a larger incentive for duopolists (monopolists) to change their prices. When both costs and demand are affected by small changes in the overall price level, the cost effect dominates. In the presence of a small, fixed cost of changing prices, therefore, duopolists change their prices in response to smaller perturbations in underlying conditions.
- Volume
- 77
- Issue
- 5
- Pages
- 917-926
- Sources
- bibtex:phds-export.bib