Price adjustment and market structure
Domberger, Simon (1977) Price adjustment and market structure. PhD thesis, University of Warwick.
WRAP_THESIS_Domberger_1977.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://webcat.warwick.ac.uk/record=b1748665~S15
The present thesis is concerned with the relationship between price
adjustments in response to changes in economic conditions and industrial
market structure. Its point of departure consists of abandoning the time-honoured
assumption that firms in industrial markets act as if they were
price takers. Instead, attention is focused on the determinants of price
adjustment in a more realistic industrial setting.
Following the introductory analysis, a synthesis is proposed
between the long-standing "administered prices" hypothesis, and the recent
theories associated with the "new view" of Keynes. It is suggested that
both approaches have common theoretical underpinnings which are themselves
closely related to this thesis.
The main body of analysis consists of a theoretical and an empirical
investigation. In the theoretical section, two distinct aspects of the
price adjustment decision are examined. The first concerns the comparative
statics of adjustment and involves an analysis of the factors which determine
the magnitude of price adjustments following changes in cost and demand.
Moreover, the influence of market structure on the adjustment process is
examined through its impact on the costs of search which are associated with
the pricing decision. The second, and no less important aspect of the
theoretical investigation concerns the dynamics of price adjustment. The
object of this analysis is to assess the impact of market structure on the
rate of price adjustment over time.
The two hypotheses developed in the theoretical section are put to
extensive empirical testing. The quantitative analysis involves mainly
time-series and cross-section regressions, but other statistical techniques
such as rank correlation and covariance tests are also employed.
The first of these hypotheses is that price adjustments in response
to short-run changes in demand could be attenuated relative to those occasioned by changes in marginal costs. The rationale for this asymmetry
is based on the unequal impact of search costs. The empirical findings,
whilst by no means conclusive, do not contradict this view.
The second hypothesis suggests that a high degree of industrial
concentration will be associated with high rates of price adjustment. This
is because concentration facilitates the process of dynamic co-ordination
amongst firms by reducing the costs of search. The empirical results come
out strongly in favour of this hypothesis. The consequential implications
regarding "administered prices" and the management of inflation are explored
in the concluding chapter of this thesis.
|Item Type:||Thesis or Dissertation (PhD)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Library of Congress Subject Headings (LCSH):||Industrial organization (Economic theory), Pricing, Prices|
|Official Date:||December 1977|
|Institution:||University of Warwick|
|Theses Department:||Department of Economics|
|Sponsors:||Great Britain. Office of Fair Trading|
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