Wednesday, January 28, 2009

'Sticky prices

The Muncie The Star Press' 'Sticky prices' here to stay? reminds me about soemthing I read years ago about cigars. When the boom was on for premium cigars, prices and there was also a shortage of wrappers, someone wrote that prices would not go down to the old prices since people get used to paying a higher price:
"Some experts say that the downturn in gas prices has resulted in an easing of other prices, but others say consumers shouldn't expect quick price reductions at other spots besides the gas pump.

Economist Michael Hicks calls the phenomenon 'sticky prices.'

'I think it (lower prices) will happen, but it will be a little bit longer,' said Hicks, director of the Center for Business and Economic Research at Ball State University. 'If producers believe gasoline prices will remain modest for another year, they might be willing to drop prices. But firms are very reluctant to raise or lower prices until they see everybody else willing to do so.'

Both Hicks and Corinne Alexander, a professor of agricultural economics at Purdue University, also cited long-standing contracts between suppliers and retailers.

'Food prices are coming down,' Alexander said. 'Just maybe not as fast as people would hope.'"

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