Price Adjustment and Market Structure

The present thesis is concerned with the relationship between price in response to changes in economic conditions and industrial structure. Its point of departure consists of abandoning the time-honoured that firms in industrial markets act as if they were takers. Instead, attention is focused on the determinants of price in a more realistic industrial setting. the introductory analysis, a synthesis is proposed the long-standing "administered prices" hypothesis, and the recent associated with the "new view" of Keynes. It is suggested that approaches have common theoretical underpinnings which are themselves related to this thesis. main body of analysis consists of a theoretical and an empirical. In the theoretical section, two distinct aspects of the adjustment decision are examined. The first concerns the comparative of adjustment and involves an analysis of the factors which determine magnitude of price adjustments following changes in cost and demand. , the influence of market structure on the adjustment process is through its impact on the costs of search which are associated with pricing decision. The second, and no less important aspect of the investigation concerns the dynamics of price adjustment. The of this analysis is to assess the impact of market structure on the of price adjustment over time. two hypotheses developed in the theoretical section are put to empirical testing. The quantitative analysis involves mainly -series and cross-section regressions, but other statistical techniques as rank correlation and covariance tests are also employed. first of these hypotheses is that price adjustments in response short-run changes in demand could be attenuated relative to those occasioned by changes in marginal costs. The rationale for this asymmetry based on the unequal impact of search costs. The empirical findings, by no means conclusive, do not contradict this view. second hypothesis suggests that a high degree of industrial will be associated with high rates of price adjustment. This because concentration facilitates the process of dynamic co-ordination firms by reducing the costs of search. The empirical results come strongly in favour of this hypothesis. The consequential implications "administered prices" and the management of inflation are explored the concluding chapter of this thesis.