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Price stickiness and markup variations in market games

Chen, G; Korpeoglu, CG; Spear, SE; (2017) Price stickiness and markup variations in market games. Journal of Mathematical Economics , 72 pp. 95-103. 10.1016/j.jmateco.2017.07.003. Green open access

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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.

Type: Article
Title: Price stickiness and markup variations in market games
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jmateco.2017.07.003
Publisher version: https://doi.org/10.1016/j.jmateco.2017.07.003
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: General Equilibrium, Market Game, Price Rigidity
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management
URI: https://discovery.ucl.ac.uk/id/eprint/10050646
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