Jean-Paul L'Huillier (EIEF)

We propose a strategic microfoundation for sticky prices. We model an environment in which a firm has better information than its consumers and show that, when many consumers are uninformed, it is optimal for the firm to offer sticky contracts or sticky prices. We establish this result in a general mechanism design framework that allows for non-linear pricing and screening. We then discuss the implications of this microfounded friction for welfare.

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