Working Paper: NBER ID: w1943
Authors: Julio J. Rotemberg; Garth Saloner
Abstract: This paper seeks to explain why monopolies keep their nominal prices constant for longer periods than do tight oligopolies. We provide two possible explanations. The first is based on the presence of a small fixed cost of changing prices. The second, on small costs of discovering the optimal price. The incentive to change price for duopolists producing differentiated products exceeds that of a single monopolistic firm which produced the same tange of products as the duopoly.
Keywords: Monopoly; Oligopoly; Price Rigidity; Industrial Organization
JEL Codes: D43; L12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Market structure (monopoly vs. oligopoly) (L11) | Price rigidity (D41) |
| Fixed costs of changing prices (D49) | Reluctance to change prices (D49) |
| Competitive pressures among duopolists (D43) | Increased frequency of price changes (E30) |
| Price rigidity (D41) | Monopolists maintain constant prices for longer periods (D42) |
| Market power (L11) | Less frequent price changes by monopolists (D42) |