What is 'Price Stickiness'

The resistance of a price (or set of prices) to change, despite changes in the broad economy that suggest a different price is optimal. "Sticky" is a general economics term that can apply to any financial variable that is resistant to change. When applied to prices, it means that the prices charged for certain goods are reluctant to change despite changes in input cost or demand patterns.

Price stickiness can also occur in just one direction, as in "sticky-up" or "sticky-down". A price that is sticky-up, for instance, can move up rather easily but will only will move down with pronounced effort.

BREAKING DOWN 'Price Stickiness'

The fact that price stickiness exists can be attributed to several different forces, such as the costs to update pricing, including changes to marketing materials that must be made when prices do change. Part of price stickiness is also attributed to imperfect information in the markets, or non-rational decision-making by company executives. Some firms will try to keep prices constant as a business strategy, even though it is not sustainable based on material costs, labor, etc.

RELATED TERMS
  1. Sticky Wage Theory

    An economic hypothesis theorizing that pay of employees tends ...
  2. Sticky Deal

    An issue of new securities that may present a selling challenge ...
  3. Price Change

    The difference in the cost of an asset or security from one period ...
  4. Change

    1. For an options or futures contract, the difference between ...
  5. Menu Costs

    An economic term used to describe the cost incurred by firms ...
  6. Sticky-Down

    A figure that can move higher relatively easily, but only will ...
Related Articles
  1. Small Business

    Understanding Sticky Wage Theory

    The sticky wage theory states that workers’ earnings respond slowly to changes in the performance of the company or the economy.
  2. Small Business

    How to Manage Corporate Change in the Modern Economy

    Change can make employees uncomfortable, but these keys can help ease the transition and increase morale.
  3. Investing

    What's a Sensitivity Analysis?

    Sensitivity analysis is used in financial modeling to determine how one variable (the target variable) may be affected by changes in another variable (the input variable).
  4. Insights

    What Does Price Level Mean?

    Price level is the average of all current prices for goods and services in an economy.
  5. Trading

    Sensitivity Analysis For Black-Scholes Pricing Model

    Trading options requires complex calculations, based on multiple parameters. Which factors impact option prices the most?
  6. Insights

    Understanding Market Price and Its Changes

    An asset’s or service’s market price is the current price at which it can be bought and sold.
  7. Insights

    The Consumer Price Index

    Find out how this economic measure can help you make key financial decisions.
  8. Investing

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  9. Investing

    Interpreting Support And Resistance Zones

    Use of support and resistance zones can be a key to successful trades. Learn how they work and how to use them.
RELATED FAQS
  1. How can I calculate a company's forward p/e in Excel?

    Discover why trading volume is higher when the price of a security changes. Supply and demand is the mechanism through which ... Read Answer >>
  2. Does the consumer price index (CPI) correlate with the change in price of goods and ...

    See why the consumer price index is a questionable proxy for inflation, and why it is unlikely to represent experiences with ... Read Answer >>
  3. To what extent can fast food restaurants like McDonald's pass along rising input ...

    Learn what input prices consist of. Understand to what extent a fast-food restaurant like McDonald's can pass along rising ... Read Answer >>
  4. How should an accountant correctly record and report a change in an accounting estimate?

    Read about how the FASB treats a change in accounting estimate and what businesses are required to report or disclose when ... Read Answer >>
  5. What is the correlation between inflation and interest rate risk?

    Learn about the correlation between inflation and interest rate risk. Central banks raise interest rates when inflation becomes ... Read Answer >>
  6. How should a change in accounting principle be recorded and reported?

    Learn about changes in accounting principle and why businesses make them, as well as the reporting and recording requirements ... Read Answer >>
Hot Definitions
  1. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  2. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  3. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  4. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Four Percent Rule

    A rule of thumb used to determine the amount of funds to withdraw from a retirement account each year. The four percent rule ...
Trading Center