Sticky prices imply that some firms are afraid to cut their prices because they are afraid of price wars.

Question

Quizplus · Accepted Answer

Sticky prices refer to the phenomenon where prices of goods and services do not adjust immediately in response to changes in supply and demand. This can be due to various factors such as menu costs, contracts, and psychological factors. However, one reason why some firms may be hesitant to cut their prices is the fear of starting a price war with their competitors.

Sticky Prices Imply That Some Firms Are Afraid to Cut