TY - JOUR
T1 - Menu costs and dynamic duopoly
AU - Kano, Kazuko
N1 - Funding Information:
This paper is based on the third chapter of my doctoral thesis, and was previously circulated under the title “Menu costs, strategic interactions, and retail price movements.” I appreciate the research guidance by Margaret Slade and valuable comments by Susum Imai, Takashi Kano, Victor Aguirregabiria, Michael Keane, Thomas Lemieux, Michael Noel, Hiroshi Ohashi, Art Shneyenov, and seminar participants in various conferences and seminars. I also appreciate the comments by the co-editor, Harry Paarsch, and two anonymous referees, which were greatly helpful to improve this paper. This research was supported by Nikkei Center Research Grant . I am responsible for all remaining errors.
PY - 2013
Y1 - 2013
N2 - 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.
AB - 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.
KW - Dynamic discrete choice game
KW - Keywords
KW - Menu costs
KW - Retail price
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U2 - 10.1016/j.ijindorg.2012.11.002
DO - 10.1016/j.ijindorg.2012.11.002
M3 - Article
AN - SCOPUS:84872064593
SN - 0167-7187
VL - 31
SP - 102
EP - 118
JO - International Journal of Industrial Organization
JF - International Journal of Industrial Organization
IS - 1
ER -