Price stickiness and markup variations in market games

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

Research output: Contribution to journalArticleAcademicpeer-review

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 languageEnglish
Pages (from-to)95-103
Number of pages9
JournalJournal of Mathematical Economics
Volume72
DOIs
Publication statusPublished - Oct 2017
Externally publishedYes

Keywords

  • General equilibrium
  • Market game
  • Price rigidity

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