Price Stickiness and Strategic Uncertainty: An Experimental Study

We identify a minimal set of components to generate price stickiness by a laboratory experiment on an
oligopolistic price setting game. Our design involves repeated aggregate shocks to the market but
features no uncertainty in their timing and magnitude, no real-nominal distinction, or no need to compute
the best response to the prices of the other subjects. We find persistent price stickiness when prices are
strategic complements and fully anticipated shocks lower the equilibrium price. We argue that the
observed downward stickiness can be attributed to the presence of strategic uncertainty and strategic
complementarity, combined with an asymmetric payoff structure such that adjusting an individual price
faster than others toward the lower equilibrium price can potentially lead to a significant loss, compared
to faster adjustment to the higher equilibrium price.