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Rationally inattentive seller: sales and discrete pricing
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SYSNO ASEP 0342781 Document Type J - Journal Article R&D Document Type Journal Article Subsidiary J Ostatní články Title Rationally inattentive seller: sales and discrete pricing Author(s) Matějka, Filip (NHU-N) RID Source Title CERGE-EI Working Paper Series - ISSN 1211-3298
Roč. 20, č. 1 (2010), s. 89-146Number of pages 58 s. Publication form www - www Language eng - English Country CZ - Czech Republic Keywords rational inattention ; nominal rigidity ; sales Subject RIV AH - Economics R&D Projects LC542 GA MŠMT - Ministry of Education, Youth and Sports (MEYS) CEZ AV0Z70850503 - NHU-N (2005-2011) Annotation This paper presents a model of a rationally inattentive seller responding to shocks to unit input cost. The model generates price series simultaneously exhibiting all three of the following features that can be found in the data. 1) Prices change frequently. 2) Responses of prices to aggregate variables are delayed. 3) Prices move back and forth between a few rigid values. Discrete pricing arises even if the unit input cost varies in a continuous range. Results of the model also agree with the evidence that reductions in price, e.g. sales, are usually short-lasting and that the highest price in a sample tends to be the most quoted price. Discrete and asymmetric pricing is a seller's optimal response to his limited information capacity. Moreover, the model provides rationale for faster responses to aggregate shocks in industries with more volatile idiosyncratic shocks as well as for a steeper Philip's curve in less stable aggregate conditions. Workplace Economics Institute Contact Tomáš Pavela, pavela@cerge-ei.cz, Tel.: 224 005 122 Year of Publishing 2011
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