Sticky prices as a coordination success.: An article from: Atlantic Economic Journal

This digital document is an article from Atlantic Economic Journal, published by Atlantic Economic Society on June 1, 1998. The length of the article is 3348 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.

From the author: Recent contributions have articulated ways in which price rigidities signal breakdowns of coordination. These contributions are aimed at unifying New Keynesian economics by linking the issue of nominal price flexibility with that of between-firm coordination. By contrast, this paper demonstrates that sticky prices can signal a coordination success rather than a coordination failure. A model is developed in which N firms face a stochastic industry demand and engage in (infinitely) repeated Bertrand competition. In each period, firms are able to learn the realization of the demand shock but at a positive cost. The existence of two equilibria - one featuring sticky prices and the other featuring flexible prices - is proved. These equilibria are then compared. The equilibrium featuring sticky prices Pareto-dominates that featuring the flexible ones. (JEL L16)

Citation Details
Title: Sticky prices as a coordination success.
Author: Kenneth Mischel
Publication:Atlantic Economic Journal (Refereed)
Date: June 1, 1998
Publisher: Atlantic Economic Society
Volume: v26 Issue: n2 Page: p162(10)

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