[1]: 378 Economic models with real rigidities lead to nominal shocks (like changes in monetary policy) having a large impact on the economy.
First, firms with market power can raise their mark-ups to offset declines in marginal cost and maintain a high price.
Cutting prices in a situation would not necessarily create more demand for a firm's products; it may just lead to lower profits and bankruptcy.
They not only have to know the demand for their own goods and their own costs, they have to know the pricing factors for all their competitors and other firms in the vast market of inputs and outputs.
[1]: 383 Implicit contract theory attributes stable real wages to implied agreements between employers and workers.
[1]: 384 Seeing implicit contracts as a poor basis for real wage rigidities, new Keynesian economists sought other explanations.
Under these models, wages are not determined strictly by the supply and demand for labor but by the marginal productivity of workers.
[2]: 357 In "gift exchange" models firms pay high wages to increase productivity through improved worker morale.