The role of nonlinear pricing and resale price maintenance on nominal price stability

Nominal price rigidity and its effects on monetary policy are a central concern of Macroeconomics. Monetary
Policy (MP) is one of the most important tools a government has to intervene in the economy of a country and reach particular objectives of great importance. In particular, monetary policy is useful to guarantee financial stability, control (and reduce) the inflation level, and promote economic growth in a country. There is an extensive literature in Macroeconomics that shows, from both theoretical and empirical perspectives, that the real effects of MP depend on the level of aggregate price inertia. If the aggregate price level is highly sticky, achange in MP is not offset by slow moving price level (Kehoe and Midrigan, 2012).

A remarkable finding in this literature is that that the degree of responsiveness of the aggregate price level is determined heavily by the frequency of changes of individual goods prices (Midrigan, 2011; Kehoe and Midrigan, 2012). If we can understand what is behind the degree of stickyness of prices at the micro level, we will be able to identify what are the sources of aggregate price inertia, and thus provide valuable information for the central bank. In particular, this is key for countries under Inflation Targeting schemes such as Colombia.

Under this perspective, there is a lot microeconomic analysis can contribute to the understanding of the determinants of such phenomenon. Industry-specific studies on price rigidity are at the heart of a growing litrature in Industrial Organization interested in providing pieces of information to get the whole picture of aggregate price inertia (Slade, 1998, Bettendorf and Verboven, 2000; Goldberg and Verboven, 2001; Hellerstein 2008; Nakamura and Zerom, 2010; Hellerstein and Villas-Boas, 2010; Bonnet et al., 2013; Goldberg and Hellerstein, 2013). Yet, there is a lot to do in the exploration of the sources of price stickiness at the micro-level.