Habit formation: Deep and uncertain

We extend the Ravn, Schmitt-Grohe and Uribe (Review of Economic Studies, 2006) model of external deep-habits with the idea that some product varieties are more prone to habit formation than others. This creates uncertainty in habit formation which affects firm's pricing. Provided that uncertainty is strong, a profound implication is that role of market frictions, such as habit formation, and its consequences for the dynamic variations in the markups can be reserved