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Abstract

Vol. 61, No. 1, pp. 68-81 (2010)

“Real Price Rigidities -Measuring Method and Application-”
Takayuki Mizuno (Institute of Economic Research, Hitotsubashi University), Tsutomu Watanabe (Institute of Economic Research, Hitotsubashi University), Yukiko Saito (Institute of Economic Research, Hitotsubashi University)

In this paper, we propose a new method to measure the price stickiness caused by strategic complementarities in price setting behavior using the autocorrelation coefficient. Then we apply this method to the online marketplace data. Since Bils and Klenow's (2004) seminal study, the frequency of price adjustment or the average price duration have been intensively examined to measure price stickiness. While the average price duration is 1.9 days, the autocorrelation coefficient shows 6 days' path-dependency for the sample data of a liquid crystal television. This means that retailers change prices three times to complete a price adjustment. The size of price changes is lowered by the strategic complementarities, which requires a longer price adjustment time. In previous papers, price stickiness might have been underestimated due to disregarding the path-dependency of price adjustment.