The Rigidity of Prices
62 Pages Posted: 16 Jul 2004 Last revised: 17 Dec 2022
Date Written: 1986
Abstract
This paper presents evidence on the amount of price rigidity that exists in individual transaction prices. Using the Stigler-Kindahi data, I examine the behavior of individual buyers' prices for certain products used in manufacturing. My most important findings are: 1.The degree of price rigidity in many industries is significant. It is not unusual in some industries for prices to individual buyers to remain unchanged for several years. 2.Even for what appear to be homogeneous commodities, the correlation of price changes across buyers is very low. 3.There is no evidence that there is an asymmetry in price rigidity. In particular, prices are not rigid down-ward. 4.The fixed costs of changing price at least to some buyers seem trivial. There are plenty of instances where small price changes occur. 5.The level of industry concentration is strongly correlated with rigid prices. The more concentrated the industry, the longer is the average spell of price rigidity. 6.There appears to be a relationship between price rigidity, size of price change, and the length of time a buyer and seller deal with each other.I interpret the findings as evidence that it is erroneous to focus attention on price as the exclusive mechanism to allocate resources. Nonprice rationing is not a fiction, it is a reality of business and may be the efficient response to economic uncertainty.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Inflation Dynamics: A Structural Econometric Analysis
By Jordi Galí and Mark Gertler
-
Some Evidence on the Importance of Sticky Prices
By Mark Bils and Peter J. Klenow
-
Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve
By N. Gregory Mankiw and Ricardo Reis
-
Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve
By N. Gregory Mankiw and Ricardo Reis
-
By Varadarajan V. Chari, Patrick J. Kehoe, ...
-
Real Rigidities and the Non-Neutrality of Money
By Laurence Ball and David H. Romer
-
By Jordi Galí, Mark Gertler, ...
-
Control of the Public Debt: A Requirement for Price Stability?