Inflation and Optimal Price Adjustment under Monopolistic Competition

This paper considers a model of a monopolistically competitive industry with a large number of firms producing imperfect substitutes. There is an exogenous inflation rate and each firm must pay a fixed cost every time it adjusts its nominal price. It is shown that, under quite general conditions, there exists a continuum of periodic and synchronized equilibria, each one associated with a different frequency of price adjustment. Consequently, the same frequency of price adjustment is compatible with a full range of inflation rates. Copyright 1992 by The London School of Economics and Political Science

Biology · Competition (biology) · Economics · Inflation (cosmology) · Keynesian economics · Microeconomics · Monetary economics · Monopolistic competition · Monopoly · Price setting · Economic theories and models · Merger and Competition Analysis