Price Stickiness

DEFINITION of '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.

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