The New Inflation Puzzle: Understanding Price Stickiness in Digitally Dominated Markets

Abstract

The process of pricing, pricing adjustment and price maintenance has become more complex in the fast growth of digital markets, and raised some interesting questions about the traditional definition of "inflation" and price stickiness. In the digital world, firms are increasingly relying on algorithmic pricing, AI, real-time customer data and e-commerce platforms and automated pricing. These technologies provide quicker access to market information and provide a greater level of pricing efficiency, but do not automatically guarantee that prices will be adjusted due to production cost or consumer demand or competition. This research paper investigates this new inflation puzzle, and looks at what makes prices sticky in digital markets. Special focus is on algorithmic pricing, platform competition, consumer price sensitivity, menu costs, information transparency and strategic pricing behaviour. The study also analyzes the speed-up of price changes or the emergence of new types of rigidity through automated pricing mechanisms and market concentration by digital technologies. The study explores how digital transformation relates to inflationary behaviours, with a view to understanding the relevance of traditional "old school" economic concepts of 'price stickiness' in the new digital market. The study will contribute to the knowledge base on the dynamics of inflation in a digital world, and will provide valuable insights for policy makers, economists, digital businesses and market regulators on appropriate pricing strategies and monetary policy measures.