| Abstract: | Many firms change price no more than twice a year. This phenomenon is readily explained by very small price adjustment costs, and the fact that the firm's rate of profit is often insensitive to deviations in the interval between price changes from its optimal level. As a result, firms which change price only once or twice a year may earn almost as much profit as firms that adjust price optimally. This refutes the standard objection that price adjustment costs are too small to matter. The argument does not require extreme assumptions about the flatness of the firm's profit function. |
