Publication: The dynamics of durable goods markets: rational expectations and sticky prices
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1991-03
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Abstract
This paper studies price dynamics in a durable good market under the assumption that consumers have rational expectations on future prices. For a wide variety of expectations, optimal consumption plans result in sticky-price demand functions. Market dynamics are characterized by intertemporal price discrimination which provides a possible explanation for the declining path of price observed in many "young" industries. Unexpected shocks on demand result in price overshooting, while unexpected supplyshocks have the opposite effect on price.
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Durable Goods, Rational Expectations, Sticky Prices, Interıtemporal, Overshooting