Price Stickiness and Markup Variations in Market Games

22 Pages Posted: 26 Jan 2017 Last revised: 14 Oct 2017

See all articles by Guo Chen

Guo Chen

University of Kansas - Department of Economics

C. Gizem Korpeoglu

Eindhoven University of Technology

Stephen Spear

Carnegie Mellon University - Financial Economics

Date Written: January 25, 2017

Abstract

In this paper, we show that the Shapley-Shubik market game model with production naturally generates an equilibration mechanism that can accommodate price stickiness arising from strategic interactions of firms. Unlike New Keynesian models that show similar price stickiness results, the market game model does not require enforcing menu costs or other additional restraints on price adjustment mechanisms in order to generate price stickiness. As such, we suggest that the market game model can provide a good micro-foundation for macroeconomic analysis. We then explicitly show the relationship between a typical firm's markup of price over marginal cost and its market share.

Keywords: General Equilibrium, Market Game, Price Rigidity

JEL Classification: D43, D51, E12

Suggested Citation

Chen, Guo and Korpeoglu, C. Gizem and Spear, Stephen E., Price Stickiness and Markup Variations in Market Games (January 25, 2017). Journal of Mathematical Economics, Vol. 72, October 2017, Available at SSRN: https://ssrn.com/abstract=2905925 or http://dx.doi.org/10.2139/ssrn.2905925

Guo Chen

University of Kansas - Department of Economics ( email )

1300 Sunnyside Drive
Lawrence, KS 66045-7585
United States

C. Gizem Korpeoglu (Contact Author)

Eindhoven University of Technology ( email )

PO Box 513
Eindhoven, 5600 MB
Netherlands

Stephen E. Spear

Carnegie Mellon University - Financial Economics ( email )

GSIA
Schenley Park
Pittsburgh, PA 15213
United States

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