This paper presents a model of a rationally inattentive seller re-
sponding to shocks to unit input cost. The model generates price series
simultaneously exhibiting all three of the following features that can
be found in data. 1) Prices change frequently. 2)Responses of prices to
aggregate variables are delayed. 3)Prices move back and forth between
a few rigid values. Discrete pricing arises even if the unit input cost
varies in a continuous range. Results of the model also agree with the
evidence that reductions in price, e.g. sales, are usually short-lasting
and that the highest price in a sample tends to be the most quoted
price. Discrete and asymmetric pricing is a seller’s optimal response
to his limited information capacity Moreover, the model provides ra-
tionale for faster responses to aggregate shocks in industries with more
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