Why Are Prices Sticky? the Dynamics of Wholesale Gasoline Prices
Abstract
The menu-cost interpretation of sticky prices implies that the probability of a price change should depend on the past history of prices and fundamentals only through the gap between the current price and the frictionless price. We find that this prediction is broadly consistent with the behavior of nine Philadelphia gasoline wholesalers. Nevertheless, we reject the menu-cost model as a literal description of these firms' behavior, arguing instead that price stickiness arises from strategic considerations of how customers and competitors will react to price changes.
Recommended Citation
Davis, M. C., & Hamilton, J. (2004). Why Are Prices Sticky? the Dynamics of Wholesale Gasoline Prices. Journal of Money, Credit and Banking Blackwell Publishing / Ohio State University.
Department(s)
Economics
International Standard Serial Number (ISSN)
0022-2879
Document Type
Article - Journal
Document Version
Citation
File Type
text
Language(s)
English
Rights
© 2004 Blackwell Publishing / Ohio State University, All rights reserved.
Publication Date
01 Jan 2004
