Working Papers

1999

 

August 1999, No. 99-5

Does State-Dependent Pricing Imply Coordination Failure?

A. Andrew John and Alexander L. Wolman

The analysis in Ball and Romer [1991] suggests that models with fixed costs of changing price may be rife with multiple equilibria; in their static model price adjustment is always characterized by strategic complementarity, a necessary condition for multiplicity. We extend Ball and Romer's analysis to a dynamic setting. In steady states of the dynamic model, we find only weak complementarity and no evidence of multiplicity, although nonexistence of symmetric steady state with pure strategies does arise in a small number of cases.

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