What is Price Stickiness?

Price stickiness refers to the price persistence of a good, service, security or economic measure (like wages) despite changing economic conditions.

How Does Price Stickiness Work?

Prices can be sticky on the way up or sticky on the way down, meaning that they move in one direction easily but require great effort to move in the other direction.

Wages are a good example of price stickiness. Wages tend to trend upward with the rate of inflation, and as a person becomes accustomed to earning a certain wage, he or she is not normally willing to take a pay cut. Pay rate is perhaps the last thing that an employee will negotiate on, only after ceding fewer hours, a decrease in benefits, etc. Only dramatic events like recessions or long periods of unemployment will cause a decline in average wages. Hence, for economic and psychological reasons, wages tend to be sticky.

Why Does Price Stickiness Matter?

From an economic perspective, price stickiness represents inefficiency in the market. After all, when supply and demand change, the equilibrium price should change. Stickiness keeps that from happening, making it one of the most important and unresolved questions in macroeconomics. Reducing price stickiness benefits companies and consumers most when supply and demand are inelastic. As a result, understanding price stickiness is a crucial component of devising effective marketing strategies and making pricing decisions.

Ask an Expert about Price Stickiness

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Price Stickiness.

Be the first to ask a question

If you have a question about Price Stickiness, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

Verified Content You Can Trust
verified   Certified Expertsverified   5,000+ Research Pagesverified   5+ Million Users