Price rigidity is the tendency for all firms in an industry to charge approximately the same price for a specific product over long periods of time. This is usually due to market conditions that limit the ability of firms to change prices easily, such as high competition, high fixed costs or high switching costs for consumers. It is not necessarily an indication of collusive agreements in an industry.

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Price Rigidity

Question 45

Multiple Choice

Price rigidity:

A) refers to the inability for firms to change price because of consumer reaction.
B) is usually an indication of collusive agreements in an industry.
C) is the tendency for all firms in an industry to charge approximately the same price for a specific product over long periods of time.
D) is the tendency for all firms in an industry to charge approximately the same price for a specific product over a short period of time even though prices may vary widely over long periods of time.
E) is almost never an indication of collusive agreements in an industry.

Correct Answer: