MONOPOLY POWER AND DOWNWARD PRICE RIGIDITY UNDER COSTLY PRICE ADJUSTMENT Academic Article

abstract

• A firm optimally determines its price and output level before demand is observed, with an option to adju st the price at a cost after demand is observed. A recursive solution to the firm's maximization problem demonstrates that firms with a hi gh degree of monopoly power display relative downward price rigidity and overproduce compared to a standard monopolist, while the reverse applies to firms with low monopoly power. Comparative statics analysi s shows that increases in adjustment costs and decreases in demand va riability raise output for firms with high monopoly power; the opposi te applies again to firms with low monopoly power. Copyright 1988 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

authors

• Balvers, Ronald

status

• published 

publication date

• April 1988

has subject area

• Economics (Science Metrix)

published in

• Bulletin of Economic Research  Journal

Digital Object Identifier (DOI)

• 10.1111/j.1467-8586.1988.tb00258.x

start page

• 115

end page

• 131

volume

• 40

issue

• 2