MARKET-STRUCTURE AND PRICE FLEXIBILITY

The relationship between market form and price adjustment patterns is examined by using disaggregated price data for Mexico over the 1940-1984 period. Frequency of price adjustment and characteristics of goods and industries appear to be related, as predicted by menu cost and customer market models. The pattern of response followed by individual prices to inflationary shocks is related to their frequency of price adjustment. The typical pattern of response to small and large shocks may differ, contrary to predictions based on models with overlapping contracts. In addition, the empirical results have implications for the relationship between inflation and relative price variability. © 1991.