On the Optimal Monopoly Price over Time

This paper is a contribution to the sticky-price literature based on an assumption that a monopolist is constrained in setting prices instantaneously because of an announcement effect whereby consumers respond negatively to large price increases. In effect, demand becomes a function of price and its rate of change. The resulting price dynamics is described as a path toward an eventual turnpike. Empirically, this allows positing the monopoly price as a variable-weight distributed lag of its determinants