Asymmetric Price Adjustment
By Arnold Kling
Andrew Chamberlain points to a Ph.D thesis by Matt Lewis on search costs and asymmetric price adjustment. The idea is that firms face a kinked demand curve (more elastic for price increases than for price cuts), because consumers search when they see a price increase, but not when they see stable prices. As a result, prices tend to adjust more rapidly upward than downward.
That was my Ph.D thesis, also, 25 years ago, which tells you that the pace of progress in economics is not exactly breathtaking. I managed to get my paper published in Economic Inquiry in 1982, shortly after the idea appeared in a better journal, without citation of my work, by an assistant professor at Amherst (now a full professor there) who heard me outline the theory when he interviewed me on the job market in 1979-80.
Not that I’m bitter or anything.
For Discussion. What is the significance of asymmetric price adjustment for macroeconomics?