- The majority of firms surveyed reported that they had globally declining MC curves (as opposed to the textbook increasing marginal costs). Blinder does point out that marginal costs is not a concept that makes much sense to real world businessmen and posits that they may be confounding MC with AC.
- Hardly any firms used freely available data on inflation as part of their price setting decisions...hard to justify unless you allow for the possibility that people suffer from money illusion.
- The theory of sticky prices that tested the best (by far) amongst real world businessmen was a theory of coordination failure amongst firms (2nd best was a theory of NON-price adjustment where markets clear in dimensions other than price). Without going into the bowels of the coordination failure theory it is worth noting that this theory predicts a priori that prices should be more sticky when prices are increasing. This is counter to the conventional Keynesian idea that prices are sticky when they are decreasing. This is particularly noteworthy in light of another major survey finding...
- Survey finds evidence that prices are more sticky when prices are increasing than when prices are decreasing! One key reason for this that crept up again and again in the free form answers from real world businessmen was that they were afraid to increase prices because they did not want to "antagonize their customers." This idea has a very Keynesian "Animal Spirits" flavor to it...

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## Thursday, July 22, 2010

### Asking About Prices...

I have finished reading Alan Blinder's "Asking About Prices." I would highly recommend it. Among the many survey results he reports I will mention several that stuck out for me in particular:

Labels:
Business Theory,
Macroeconomics,
Prices,
Theory of the Firm

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I am interested in macro, but am nevertheless strongly of the feeling that you should go on dispensing nuggets.

ReplyDeletePlease.