Optimum Pricing Policy Under Stochastic Inflation.
STANFORD UNIV CA INST FOR MATHEMATICAL STUDIES IN THE SOCIAL SCIENCES
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In this paper we consider pricing policies of individual firms in an inflationary environment. Each firm expects the general price level increase and must determine the rate of increase of its own price. It is assumed that the firm incurs an adjustment cost when it changes its nominal price. Consequently, firms choose to change prices occasionally rather than continuously. Our purpose is to analyze the dependence of the magnitude and the frequency of nominal price changes on the inflationary process. This problem has been analyzed by Sheshinski and Weiss 1977 and 1979 for the case of a fixed and certain rate of increase in the aggregate price level. This paper extends the analysis to the case of uncertainty.
- Economics and Cost Analysis