Price stickiness and markup variations in market games

Guo Chen; C. Gizem Korpeoglu; Stephen E. Spear

doi:10.1016/j.jmateco.2017.07.003

Price stickiness and markup variations in market games

Guo Chen, C. Gizem Korpeoglu, Stephen E. Spear

Research output: Contribution to journal › Article › Academic › peer-review

5 Citations (Scopus)

Abstract

In this paper, we show that the Shapley–Shubik market game model with production naturally generates an equilibration mechanism that can accommodate price stickiness arising from strategic interactions of firms. Unlike New Keynesian models that show similar price stickiness results, the market game model does not require enforcing menu costs or other additional restraints on price adjustment mechanisms in order to generate price stickiness. As such, we suggest that the market game model can provide a good micro-foundation for macroeconomic analysis. We then explicitly show the relationship between a typical firm's markup of price over marginal cost and its market share.

Original language	English
Pages (from-to)	95-103
Number of pages	9
Journal	Journal of Mathematical Economics
Volume	72
DOIs	https://doi.org/10.1016/j.jmateco.2017.07.003
Publication status	Published - Oct 2017
Externally published	Yes

Keywords

General equilibrium
Market game
Price rigidity

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10.1016/j.jmateco.2017.07.003

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AU - Spear, Stephen E.

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AB - In this paper, we show that the Shapley–Shubik market game model with production naturally generates an equilibration mechanism that can accommodate price stickiness arising from strategic interactions of firms. Unlike New Keynesian models that show similar price stickiness results, the market game model does not require enforcing menu costs or other additional restraints on price adjustment mechanisms in order to generate price stickiness. As such, we suggest that the market game model can provide a good micro-foundation for macroeconomic analysis. We then explicitly show the relationship between a typical firm's markup of price over marginal cost and its market share.

KW - General equilibrium

KW - Market game

KW - Price rigidity

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VL - 72

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EP - 103

JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

ER -

Price stickiness and markup variations in market games

Abstract

Keywords

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