Staggered and synchronized price policies under inflation: The multiproduct monopoly case

Eytan Sheshinski, Yoram Weiss

Research output: Contribution to journalArticlepeer-review

35 Scopus citations

Abstract

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 iff the interaction in profits is negative.

Original languageEnglish
Pages (from-to)331-359
Number of pages29
JournalReview of Economic Studies
Volume59
Issue number2
DOIs
StatePublished - Feb 1992

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