Price Stickiness under Menu and Convex Adjustment Costs

Qiming RAN, Ronald BALVERS

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

Abstract

In a continuous-time model of the firm, menu costs imply immediate and full price adjustment as the menu costs become negligible relative to the present value of profits lost from no-adjustment- Appending convex price-adjustment costs, however, causes both types of costs to reinforce each other since quick adjustment is costly due to the convex component while slow adjustment is costly due to the menu cost component, as this cost is incurred throughout the adjustment period. We find that optimal firm behavior implies slow price adjustment which is incomplete in the long run, even in response to a large initial shock.
Original languageEnglish
Pages (from-to)269 - 277
Number of pages9
JournalJournal of Economics Research
Volume2
Issue number2
Publication statusPublished - 1997

Fingerprint

Price stickiness
Adjustment costs
Menu
Price adjustment
Menu costs
Costs
Present value
Continuous-time model
Profit
Firm behavior

Cite this

RAN, Qiming ; BALVERS, Ronald. / Price Stickiness under Menu and Convex Adjustment Costs. In: Journal of Economics Research. 1997 ; Vol. 2, No. 2. pp. 269 - 277.
@article{7464b2f28520494baf8f0aefe2b75a82,
title = "Price Stickiness under Menu and Convex Adjustment Costs",
abstract = "In a continuous-time model of the firm, menu costs imply immediate and full price adjustment as the menu costs become negligible relative to the present value of profits lost from no-adjustment- Appending convex price-adjustment costs, however, causes both types of costs to reinforce each other since quick adjustment is costly due to the convex component while slow adjustment is costly due to the menu cost component, as this cost is incurred throughout the adjustment period. We find that optimal firm behavior implies slow price adjustment which is incomplete in the long run, even in response to a large initial shock.",
author = "Qiming RAN and Ronald BALVERS",
year = "1997",
language = "English",
volume = "2",
pages = "269 -- 277",
journal = "Journal of Economics Research",
number = "2",

}

RAN, Q & BALVERS, R 1997, 'Price Stickiness under Menu and Convex Adjustment Costs', Journal of Economics Research, vol. 2, no. 2, pp. 269 - 277.

Price Stickiness under Menu and Convex Adjustment Costs. / RAN, Qiming; BALVERS, Ronald.

In: Journal of Economics Research, Vol. 2, No. 2, 1997, p. 269 - 277.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

TY - JOUR

T1 - Price Stickiness under Menu and Convex Adjustment Costs

AU - RAN, Qiming

AU - BALVERS, Ronald

PY - 1997

Y1 - 1997

N2 - In a continuous-time model of the firm, menu costs imply immediate and full price adjustment as the menu costs become negligible relative to the present value of profits lost from no-adjustment- Appending convex price-adjustment costs, however, causes both types of costs to reinforce each other since quick adjustment is costly due to the convex component while slow adjustment is costly due to the menu cost component, as this cost is incurred throughout the adjustment period. We find that optimal firm behavior implies slow price adjustment which is incomplete in the long run, even in response to a large initial shock.

AB - In a continuous-time model of the firm, menu costs imply immediate and full price adjustment as the menu costs become negligible relative to the present value of profits lost from no-adjustment- Appending convex price-adjustment costs, however, causes both types of costs to reinforce each other since quick adjustment is costly due to the convex component while slow adjustment is costly due to the menu cost component, as this cost is incurred throughout the adjustment period. We find that optimal firm behavior implies slow price adjustment which is incomplete in the long run, even in response to a large initial shock.

M3 - Journal Article (refereed)

VL - 2

SP - 269

EP - 277

JO - Journal of Economics Research

JF - Journal of Economics Research

IS - 2

ER -