State-Dependent Attention and Pricing Decisions
American Economic Journal: Macroeconomics
vol. 15,
no. 2, April 2023
(pp. 161-89)
Abstract
This paper studies price-setting decisions under rational inattention. Prices are set by tracking an unobserved target whose distribution is also unknown. Information acquisition is dynamic and fully flexible since, given information acquired previously, price setters choose the amount of information they collect as well as how they want to learn about both the outcome and its distribution. We show that by allowing for imperfect information to be the unique source of rigidity, the model can reconcile stylized facts in the microeconomic evidence on price setting while simultaneously being consistent with empirical results on state-dependent attention.Citation
Turen, Javier. 2023. "State-Dependent Attention and Pricing Decisions." American Economic Journal: Macroeconomics, 15 (2): 161-89. DOI: 10.1257/mac.20210038Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E32 Business Fluctuations; Cycles
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L25 Firm Performance: Size, Diversification, and Scope
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