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The mechanics of price adjustment: new evidence on the (un)importance of menu costs

✍ Scribed by Rajesh Chakrabarti; Barry Scholnick

Publisher
John Wiley and Sons
Year
2007
Tongue
English
Weight
189 KB
Volume
28
Category
Article
ISSN
0143-6570

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✦ Synopsis

Abstract

This paper examines nominal price rigidities in an environment, e‐commerce, where literal menu costs can be assumed not to exist. We argue that if we can empirically show that nominal rigidities do still exist in the e‐commerce environment, then it implies that other kinds of costs besides menu costs, such as management costs, must be causing these nominal rigidities. This evidence is of importance because of the central role that menu costs play in Keynesian macroeconomics. In this paper we examine the price changing behavior of two leading online booksellers—Amazon.com and BarnesandNoble.com—and find strong evidence that nominal price rigidities do indeed persist on the Internet. Copyright © 2007 John Wiley & Sons, Ltd.

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