Questions week 3
Q1: For the past two weeks, we have been assuming that prices in the short run are ‘sticky’
and do not change. Reasons for this are menu costs and also the fact that fixed contracts
prevent people from changing prices. I was wondering whether, in recent times, prices are
able to change more quickly, as menu costs are reduced, especially for online sellers, but
also brick and mortar stores due to the rise of technology (for example, digital price tags like
at Albert Heijn). Fixed contracts would, in my mind, also only be a problem when prices need
to decrease, as an increase in price only benefits the company. Does this have any effect on
the way we think about the short to long-run transition, or is this effect too small and too
circumstantial to have any significant effect?