Limit price

About: Limit price is a research topic. Over the lifetime, 4865 publications have been published within this topic receiving 148546 citations.

A Hierarchical Bayes Error Correction Model to Explain Dynamic Effects of Price Changes

Abstract: The authors put forth a sales response model to explain the differences in immediate and dynamic effects of promotional prices and regular prices on sales. The model consists of a vector autoregression that is rewritten in error correction format, which allows the authors to disentangle the immediate effects from the dynamic effects. In a second level of the model, the immediate price elasticities, the cumulative promotional price elasticity, and the long-term regular price elasticity are correlated with various brand-specific and category-specific characteristics. The model is applied to seven years of data on weekly sales of 100 different brands in 25 product categories. The authors find many significant moderating effects on the elasticity of price promotions. Brands in categories that are characterized by high price differentiation and that constitute a lower share of budget are less sensitive to price discounts. Deep price discounts increase the immediate price sensitivity of customers. The ...

The Equilibrium and Optimal Timing of Price Changes

Abstract: This paper studies the welfare properties of the equilibrium timing of price changes. Staggered price setting has the advantage that it permits rapid adjustment to firm-specific shocks, but the disadvantages that it causes unwanted fluctuations in relative prices and that, by creating price level inertia, it can increase aggregate fluctuations. Because each firm ignores its contribution to these problems, staggering can be a stable equilibrium even if it is highly inefficient. In addition, there can be multiple equilibria in the timing of prices changes; indeed, whenever there is an inefficient staggered equilibrium, there is also an efficient equilibrium with synchronized price setting.

The Relationship Between Relative Prices and the General Price Level: A Suggested Interpretation

Abstract: In a thought-provoking paper in this Review, Daniel Vining and Thomas Elwertowski examine empirically the relationship between the variability of the rate of inflation in the general level of prices, and the variance of the rate of change in relative prices. They find a positive association between these two variances and interpret this finding as a contradiction to a modern stochastic version of the neoclassical model as presented by Robert Lucas (1973). They state: ". . . thus, in contrast to many of his other conclusions, Lucas' remark in an otherwise extremely controversial paper, namely 'that there is no reason to expect X to vary systematically with demand policies' (1976, p. 39), has gone utterly uncontested" (p. 706).' The implication is obviously that this type of model is inconsistent with the above mentioned finding. They go on to interpret their result in light of a recent paper by Robert Barro and interpret this paper as an ". . . effort to account for the observed dependence of heightened relative price change dispersion on general price change instability, relying upon a chain of causality running from general price level change instability to relative price change instability" (p. 707). They finally challenge empirical economists to discriminate between two hypotheses: ". . . i.e., to determine the direction of causality between individual price change dispersion and general price change instability" (p. 708). I claim and demonstrate in this note that: 1) If correctly interpreted the type of manymarkets stochastic model presented by Lucas is perfectly consistent with the finding that there is a positive association between individual price change dispersion and general price change dispersion. 2) It is wrong to interpret the Barro model as providing a rationale for "a chain of causality running from general price level change instability to relative price change instability" (Vining and Elwertowski, p. 707). It should rather be viewed as a conceptual framework in which both the variance of general price change and the variance of individual price change are influenced2 by some common exogenous variances like the variance of aggregate excess demand shocks and the variance of relative excess demand shocks.3 3) Within a framework in which both the variance of general price change and the variance of relative price change are determined endogenously the question regarding the direction of causality between those two variances becomes ambiguous. If for example both variances increase because the variance of the (exogenous) rate of change in nominal income increases, it does not follow logically that either the variance of general price change causes the variance of relative price change, or vice versa. However, the question raised by Vining and Elwertowski does make sense if interpreted as a question concerning the direction of causality between some attributes of aggregate variability and some attributes of relative variability. Such an interpretation is suggested later.

Public Information, IPO Price Formation, and Long‐Run Returns: Japanese Evidence

Abstract: The price formation process of JASDAQ IPOs is more transparent than in the United States. The transparency facilitates analysis of important issues in the IPO literature-why offer prices only partially adjust to public information and adjust more fully to negative information, and why adjustments are related to initial returns. The evidence indicates that early price information conveys the underwriter's commitment to compensate investors for acquiring and/or disclosing information. Offer prices reflect pre-IPO market values of public companies and implicit agreements between underwriters and issuers that originate well before the offering. Underadjustment of offer prices is substantially reversed in the aftermarket. Copyright (c) 2009 The American Finance Association.

Convergence of Volatile Power Markets With Price-Based Demand Response

Abstract: Price-based demand response (DR) program is a mechanism for encouraging electricity consumers to dynamically manage their energy consumptions in response to time-varying electricity prices, and thereby reduce peak electricity demands and alleviate the pressure to power systems. However, it brings additional dynamics and new challenges to the real-time supply and demand balance. Specifically, if real-time price based DR programs are widely deployed in the future, price-sensitive DR load levels would constantly change in response to dynamic real-time prices, which will impact the economic dispatch (ED) schedule and in turn affect electricity market clearing prices. This paper adopts two methods for examining the impacts of different DR price elasticity characteristics and DR participation levels on the convergence of volatile power market: a closed-loop iterative simulation method and a non-iterative method based on the contraction mapping theorem. In this paper, convergence refers to the fact that load and/or price values will finally converge to a fixed point after a finite number of iterations between the ED problem and the price-sensitive DR load adjustment. Five price-sensitive DR performance function categories are used to simulate different nonlinear price elasticity characteristics of DR loads. Numerical studies illustrate how the convergence status of power markets will be affected by the nonlinear price elasticity DR curves, the DR penetration levels, and the capacity limits of generating units.