Cyclical Behavior of Prices and Quantities in the Automobile Market
NBER Working Paper No. 1325 (Also Reprint No. r0789)
This paper has a simple goal, that of understanding the joint behaviorof prices and quantities in a particular market. More precisely, it examines whether we can find decision problems for suppliers and buyers, together with a market equilibrium structure, which are consistent with the observed price and quantity time series. Because of the relative homogeneity of the product, of the size of the market, end of the quality of the data, the market chosen is the automobile market.The first conclusion we reach is that this goal is difficult to achieve.The behavior of prices appears inconsistent with simple -- competitive, monopolistically competitive or monopolistic -- market structures. Prices appear, in a well defined sense, to be too "sticky". We then consider potentiail explanations and extensions. None appears completely satisfactory. In particular, the introduction of costs of changing prices does not seem able to explain the joint behavior of prices and quantities.
Published: Blanchard, Olivier J. and Angelo Melino. "The Cyclical Behavior of Prices and Quantities; the Case of the Automobile Market," Journal of Monetary Economics, Vol. 17, pp. 379-407, May 1986.