New research reveals why prices stay high despite inflation, impacting consumers.
The article discusses how consumer behavior and market dynamics can lead to both stable price ceilings and fluctuating prices in the economy. By incorporating factors like consumer search costs and bounded rationality, the researchers show that prices can stay below a set limit but occasionally reset to that limit. This pattern resembles promotional pricing and explains why prices can remain stable even with inflation. The study's model aligns better with real-world price behaviors than traditional theories based on menu costs. The findings suggest that consumer-related frictions, rather than direct costs, play a significant role in price stickiness.