Menu costs and dynamic duopoly

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

Abstract Examining a state-dependent pricing model in the presence of menu costs and dynamic duopolistic interactions, this paper claims that the assumption regarding market structure is crucial for identifying the menu costs for price changes. Prices in a dynamic duopolistic market can be more rigid than those in more competitive markets, such as a monopolistic-competition market. Therefore, the estimates of menu costs under monopolistic competition are potentially biased upward due to the price rigidity from strategic interactions between dynamic duopolistic firms. By developing and estimating a dynamic discrete-choice model with duopoly to correct for this potential bias, this paper provides empirical evidence that dynamic strategic interactions, as well as menu costs, play an important role in explaining the observed degree of price rigidity in weekly retail prices.

Original languageEnglish
Pages (from-to)102-118
Number of pages17
JournalInternational Journal of Industrial Organization
Volume31
Issue number1
DOIs
Publication statusPublished - 2013 Jan 14
Externally publishedYes

Keywords

  • Dynamic discrete choice game
  • Keywords
  • Menu costs
  • Retail price

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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