Staggered and Synchronized Price Policies Under Inflation: The Multiproduct Monopoly Case

This paper analyses the optimum pricing policies of a multiproduct monopoly in the presence of inflation and fixed costs of nominal price changes. We examine the conditions which lead to staggered or synchronized pricing policies when the timing of price changes is endogenous. Two aspects of the dec...

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Bibliographic Details
Published in:The Review of economic studies 1992-04, Vol.59 (2), p.331-359
Main Authors: Sheshinski, Eytan, Weiss, Yoram
Format: Article
Language:English
Subjects:
Economic costs
Inflation
Menu costs
Monopolies
Monopoly
Nominal prices
Price changes
Price increases
Price level changes
Price policy
Pricing policies
Real prices
Steady state economies
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Summary:This paper analyses the optimum pricing policies of a multiproduct monopoly in the presence of inflation and fixed costs of nominal price changes. We examine the conditions which lead to staggered or synchronized pricing policies when the timing of price changes is endogenous. Two aspects of the decision problem are emphasized: the interactions in the joint profit function between the prices of the various goods and the interactions in the costs of price adjustment. We show that with positive interactions in the profit function and costs of price adjustments that are independent across products, staggering is unlikely. Depending on initial conditions, a firm may follow a staggered steady state or a synchronized steady state path. But the former is locally unstable while the latter is attained from a broad set of initial conditions. For a small rate of interest the staggered policy is optimal if! the interaction in profits is negative.
ISSN:0034-6527
1467-937X
DOI:10.2307/2297957