Showing papers on "Price level published in 2008"
TL;DR: In this article, the authors show that the frequency of price change is highly seasonal: it is highest in the first quarter and then declines, and that price increases covaries strongly with inflation, whereas price decreases and the size of price increases and decreases do not.
Abstract: are price decreases. (3) The frequency of price increases covaries strongly with inflation, whereas the frequency of price decreases and the size of price increases and price decreases do not. (4) The frequency of price change is highly seasonal: it is highest in the first quarter and then declines. (5) We find no evidence of upwardsloping hazard functions of price changes for individual products. We show that the first, second, and third facts are consistent with a benchmark menu-cost model, whereas the fourth and fifth facts are not.
1,588 citations
Posted Content•
TL;DR: In this paper, it was shown that for the case of a single price change, which is also the situation in which consumer's surplus is often used in applied work, no approximation is necessary.
Abstract: Consumer's surplus is a widely used tool in applied welfare economics. Both economic theorists and cost benefit analysis often use consumer's surplus despite its somewhat dubious reputation. The basic idea is to evaluate the value to a consumer or his "willingness to pay" for a change in price of a good from say pricep? to pricep'. Because price changes affect consumer welfare, an evaluation of this effect is often a key input to public policy decisions. Yet consumer's surplus is probably the most controversial of widely used economic concepts. Both Paul Samuelson and Ian Little conclude that the economics profession would be better off without it. It is my feeling of the situation that substantial agreement exists on the correct quantities to be measured: the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change. The quantities correspond to John Hicks' compensating variation measures. An alternative measure which takes ex post price change utility as the basis of comparison is Hicks' equivalent variation.' The controversy arises in the measurement of these quantities. The usual measurement procedure is to use the area to the left of the Marshallian (market) demand curve between two price levels. Jules Dupuit originated this measure of welfare change, and Alfred Marshall and Hicks derived appropriate conditions for its use. The primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income. Marshall gave this condition, and if it holds, the same quantity will be derived as the area to the left of the compensated (Hicksian) demand curve. This area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure. Thus the constant marginal utility of income is a sufficient condition for Marshallian consumer's surplus to be equal to Hicks' consumer's surplus. In this case Arnold Harberger's plea to use the welfare triangle as one-half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change. In a recent paper, Robert Willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the Marshallian measure derived form the market demand curve. His bounds, which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer's income spent on the good, demonstrate that the Marshallian consumer's surplus is often a good approximation to Hicks' consumer's surplus. The fact that the proportion of the consumer's income spent matters as well as the income elasticity was first pointed out by Harold Hotelling. Willig contends that the approximation error will be less than the errors involved in estimating the demand curve. Thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using Marshallian consumer's surplus to measure welfare change. However, in this paper I show that for the case primarily considered by Willig of a single price change, which is also the situation in which consumer's surplus is often used in applied work, no approximation is necessary. *Professor of economics, Massachusetts Institute of Technology, and research associate, National Bureau of Economic Research. I would like to thank Peter Diamond, Erwin Diewert, Daniel McFadden, Robert Merton, Robert Solow, Hal Varian, Joel Yellin, and the referees for help and comments. Research support from the National Science Foundation is acknowledged. 'The reason that we still have two, rather than one, of Samuelson's six measures of consumer's surplus arises from an index number problem of the correct basis for the welfare comparison. I will give both measures but plan to concentrate on the compensating variation.
707 citations
01 Jul 2008
TL;DR: The authors of as mentioned in this paper provide a comprehensive, objective assessment of the forces driving food prices and conclude that today's food price levels are the result of complex interactions among multiple factors, including crude oil prices, exchange rates, growing demand for food and slowing growth in agricultural productivity.
Abstract: Preface : The temperature of the rhetoric in the food-versus-fuel debate has been rising right along with the prices of corn and oil. Farm Foundation is not about heat or fueling fires. Our mission is to be a catalyst for sound public policy by providing objective information to foster deeper understanding of the complex issues before the food system today. We commissioned this paper to provide a comprehensive, objective assessment of the forces driving food prices. In recent months, much has been written in the academic and popular press about commodity prices, biofuels and food prices—often with varying perspectives and conclusions. Farm Foundation asked Wallace Tyner, Philip Abbot and Christopher Hurt, all of Purdue University, to review the literature and provide a comprehensive assessment of the forces driving food prices today. The three economists reviewed more than two dozen reports and studies, summarizing them in light of their own examination of the facts. As is true of many issues in the food system, the full story behind rapid increases in food prices is not a simple one. Today’s food price levels are the result of complex interactions among multiple factors—including crude oil prices, exchange rates, growing demand for food and slowing growth in agricultural productivity—as well as the agricultural, energy and trade policy choices made by nations of the world. But one simple fact stands out: economic growth and rising human aspirations are putting ever greater pressure on the global resource base. The difficult challenge for public and private leaders is to identify policy choices that help the world deal with the very real problems created by today’s rising food prices without jeopardizing aspirations for the future. It is the intent of Farm Foundation that the objective information provided in this report will help all stakeholders meet the challenge to address one of the most critical public policy issues facing the world today.
452 citations
TL;DR: In this article, the authors analyzed the international transmission of monetary shocks with a special focus on the effects of foreign money ("global liquidity") on the euro area and found that innovations in global liquidity play an important role in explaining price and output fluctuations.
Abstract: This paper analyses the international transmission of monetary shocks with a special focus on the effects of foreign money ("global liquidity") on the euro area. We estimate structural VAR models for the euro area and the global economy including a global liquidity aggregate. The impulse responses obtained show that a positive shock to extra-euro area liquidity leads to permanent increases in the euro area M3 aggregate and the price level, a temporary rise in real output and a temporary appreciation of the real effective exchange rate of the euro. Moreover, we find that innovations in global liquidity play an important role in explaining price and output fluctuations in the euro area and in the global economy. JEL Classification: E52, F01
275 citations
TL;DR: Monet et al. as discussed by the authors estimate an eight variable structural vector autoregression (SVAR) model of the UK economy based upon that of Kim and Roubini for the purpose of investigating the role of the housing market in the transmission of monetary policy.
173 citations
TL;DR: In this article, the authors investigate the short and long-term effects of the price war on store visits, on spending, and on the sensitivity of these decisions to weekly prices and price image.
Abstract: Although retail price wars have received much business press and some research attention, it is unclear how they affect consumer purchase behavior. This article studies an unprecedented price war in Dutch grocery retailing that started in fall 2003, initiated by the market leader to halt its sliding market share. The authors investigate the short- and long-term effects of the price war on store visits, on spending, and on the sensitivity of these decisions to weekly prices and price image. They use a unique data set with consumer hand-scan and perceptual data for a national panel of 1821 households, covering two years before and two years after the price war started. Although the price war initially entailed more shopping around and increased spending, spending per visit ultimately dropped because consumers redistributed their purchases across stores. The price war made consumers more sensitive to weekly prices and price image, which helped both the chain that showed an improvement in price image...
166 citations
TL;DR: A large recent literature has studied whether the volatility and persistence of real exchange rates can be understood in the context of sticky price models with staggered price setting as mentioned in this paper, and concluded that such models can explain the volatility of the real exchange rate but that they cannot match its persistence.
Abstract: Since the breakdown of the Bretton Woods system of fixed exchange rates, the real exchange rates of the world's largest economies have been highly volatile. Furthermore, swings in these real exchange rates have been highly persistent. A large recent literature has studied whether the volatility and persistence of real exchange rates can be understood in the context of sticky price models with staggered price setting. This literature was pioneered by V. V. Chari, Patrick J. Kehoe, and Ellen R. McGrattan (2002). They concluded that such models can explain the volatility of the real exchange rate but that they cannot match its persistence. A number of sub? sequent papers have sought to address this "persistence anomaly" by introducing various forms of strategic complementarity and asymmetry, as well as sticky wages and persistent monetary
156 citations
TL;DR: In this article, the authors examined how partitioning the total price differently across the components affects consumer preferences and found that consumers' reactions to price partitioning are moderated by the perceived consumption benefit of the components.
Abstract: Firms often use a pricing strategy in which the total price of a product and/or service is partitioned into two or more mandatory components. Whereas previous research has compared partitioned with nonpartitioned pricing, this article examines how partitioning the total price differently across the components affects consumer preferences. In four studies, the authors show that consumers' reactions to price partitioning are moderated by the perceived consumption benefit of the components. Specifically, consumers are more sensitive to the price of components that provide low consumption benefits than to the price of components that provide relatively high consumption benefits. Consequently, when evaluating different partitions of the same total price, consumers prefer partitions in which the price of the low-benefit component is lower and the price of the high-benefit component is higher.
120 citations
TL;DR: This article examined the transmission of international coffee prices through the domestic value chain in Uganda and found that producer price fluctuations are inconsistent with constant transaction costs, and investigated three possible explanations for this finding: storage and contango, marketing costs that increase with price, and trader entry that raises search time.
Abstract: Using detailed data from three simultaneous surveys of producers, traders, and exporters, this paper examines the transmission of international coffee prices through the domestic value chain in Uganda. We find that producer price fluctuations are inconsistent with constant transaction costs. We investigate three possible explanations for this finding: storage and contango, marketing costs that increase with price, and trader entry that raises search time. We test and reject the storage and marketing costs explanation, but we find some evidence of trader entry in response to a rise in export price. Our findings suggest that small itinerant traders enter in response to an export price increase, probably taking advantage of farmers’ ignorance of the rise in wholesale price.
119 citations
Posted Content•
TL;DR: The authors revisited these three stylized facts using massive amounts of US and Canadian data that share a common barcode classification, and found that none of these three main stylised facts survive. But their work is supportive of simple pricing models where the degree of market segmentation across the border is similar to that within borders.
Abstract: The empirical literature in international finance has produced three key results about international price deviations: borders give rise to flagrant violations of the law of one price, distance matters enormously for understanding these deviations, and most papers find that convergence rates back to purchasing power parity are inconsistent with the evidence of micro studies on nominal price stickiness. The data underlying these results are mostly comprised of price indexes and price surveys of goods that may not be identical internationally. In this paper, we revisit these three stylized facts using massive amounts of US and Canadian data that share a common barcode classification. We find that none of these three main stylized facts survive. We use our barcode level data to replicate prior work and explain what assumptions caused researchers to find different results from those we find in this paper. Overall, our work is supportive of simple pricing models where the degree of market segmentation across the border is similar to that within borders.
111 citations
TL;DR: In this article, the authors investigated the impact of large oil price hikes in a standard VAR framework by introducing a new Markov switching based oil price specification, which allows for a well-founded distinction between "large" and "normal" oil price increases.
Abstract: This paper considers the macroeconomics of the oil price for the United States. It investigates the impact of large oil price hikes in a standard VAR framework by introducing a new Markov switching based oil price specification. The explanatory power of this new specification is compared to that of a number of prominent non-linear specifications. The key findings are: (1) the new oil price specification is appropriate in both empirical and theoretical terms and allows for a well-founded distinction between "large" and "normal" oil price increases. (2) The observed impact of oil price shocks on real GDP growth is largely attributable to no fewer than three large oil price increases, namely those of 1973-74, 1979 and 1991, while variables such as consumer and import prices are also affected by normal oil price increases.
Posted Content•
TL;DR: In this article, the authors investigate the real-nominal convergence nexus from the perspective of euro area entry and argue that the initial level of economic development as measured by per capita income and the speed of real convergence have a bearing on the strategies to follow and on the timing of entry into euro area.
Abstract: The paper discusses the risks and challenges faced by the new members on the road to the euro and the strategies for and timing of euro adoption. We investigate the real-nominal convergence nexus from the perspective of euro area entry. We argue that the initial level of economic development as measured by per capita income and the speed of real convergence have a bearing on the strategies to follow and on the timing of entry into euro area. This is because the lower is the per capita income, the larger is the price level gap to close and the greater is the danger of credit booms and overheating. We argue that inflation targeting with floating rates is better suited than hard pegs to manage the price level catching-up process. We suggest a modification in the Maastricht inflation criterion which as currently defined has lost its economic logic.
TL;DR: In this paper, the authors used a new and unique country data set on the price of home appliances to test its impact on female labor supply and found that a decrease in the relative price of appliances led to a substantial and statistically significant increase in female labor force participation.
Abstract: The secular rise in female labor force participation, highlighted in the recent macroeconomics literature on growth and structural change, has been associated with the declining price and wider availability of home appliances. This paper uses a new and unique country data set on the price of home appliances to test its impact on female labor supply. We assess the role of the price of appliances in raising participation by comparing it to other structural determinants such as average male income. A decrease in the relative price of appliances—the ratio of the price of appliances to the consumer price index—leads to a substantial and statistically significant increase in female labor force participation. In the United Kingdom, for instance, the decline in the relative price of home appliances alone accounts for about 10% to 15% of the increase in female labor force participation from 1975 to 1999. This result is robust to the inclusion of additional controls, such as country dummies, time trend, go...
TL;DR: This article developed a model where firms make state-dependent decisions on both pricing and acquisition of information and showed that when information is not perfect, menu costs combined with the aggregate price level serving as an endogenous public signal generate rigidity in price setting even when there is no real rigidity.
Abstract: This paper develops a model where firms make state-dependent decisions on both pricing and acquisition of information. It is shown that when information is not perfect, menu costs combined with the aggregate price level serving as an endogenous public signal generate rigidity in price setting even when there is no real rigidity. Specifically, firms reveal their information to other firms by changing their prices. Because the cost of changing price is borne by a firm but the benefit from better information goes to other firms, firms have an incentive to postpone price changes until more information is revealed by other firms via the price level. The information externality and menu costs reinforce each other in delaying price adjustment. As a result, the response of inflation to nominal shocks is both sluggish and hump-shaped. The model can also qualitatively capture a number of stylized facts about price setting at the micro level and inflation at the macro level.
TL;DR: In this article, a myopic algorithm is proposed to solve the problem of the consumer's utility maximization problem under a monotonicity condition, and the optimal policy outperforms renting and can be implemented by a time consistent best price provision.
Abstract: This paper solves for the proflt maximising strategy of a durable{goods monopolist when incoming demand varies over time. Each period, additional consumers enter the market; these consumers can then choose whether and when to purchase. We flrst characterise the consumer’s utility maximisation problem and, under a monotonicity condition, show the proflt maximising allocation can be solved through a myopic algorithm, which has an intuitive marginal revenue interpretation. Consumers’ ability to delay creates an asymmetry in the optimal price path, which exhibits fast increases and slow declines. This asymmetry pushes the price level above that charged by a flrm facing the average level of demand. Applications of this framework include deterministic demand cycles, one{ofi shocks and IID demand draws. The optimal policy outperforms renting and can be implemented by a time consistent best{price provision.
TL;DR: In this article, the authors estimate different depreciation rates of house prices depending on the level of maintenance of a property and the location of the property and show that maintenance has a substantial impact on the price level.
TL;DR: The authors found that the degree to which traded food commodities and the price of food are related depends on a long list of factors, most of which operate to dampen price transmission, and that consumers do not buy raw food commodities at international prices.
TL;DR: In this paper, the authors examined the demand for energy at disaggregate level (gas, electricity and coal) for Pakistan over the period 1972-2007, and found that electricity consumption responds positively to changes in real income per capita and negatively to domestic price level.
Abstract: This study examines the demand for energy at disaggregate level (gas, electricity and coal) for Pakistan over the period 1972-2007. Over main results suggest that electricity and coal consumption responds positively to changes in real income per capita and negatively to changes in domestic price level. The gas consumption responds negatively to real income and price changes in the shortrun, however, in the long-run real income exerts positive effect on gas consumption, while domestic price remains insignificant. Furthermore, in the short-run the average elasticities of price and real income for gas consumption (in absolute terms) are greater than that of electricity and coal consumption. The differences in elasticities of each component of energy have significant policy implications for income and revenue generation.
01 Nov 2008
TL;DR: This work develops decision support models for suppliers to set prices for online mechanisms with different transparency levels and empirically analyzes the price levels set by airlines across transparent and opaque online travel agencies to suggest airlines can increase profit by increasing price differentials or influencing OTA transparency differences.
Abstract: Sellers increasingly compete with innovative Internet-based selling mechanisms, revealing or concealing market information. Transparency strategy involves design choices by firms that influence the availability and accessibility of information about products and prices. We develop decision support models for suppliers to set prices for online mechanisms with different transparency levels. We then empirically analyze the price levels set by airlines across transparent and opaque online travel agencies. Our results suggest that airlines can increase profit by increasing price differentials or influencing OTA transparency differences. We also discuss application generality and limitations of our results.
01 Feb 2008
TL;DR: In this article, the authors use functional data modeling to study the price formation process in online auctions and find that the incremental impact of an additional bidder's arrival on the rate of price increase is smaller towards the end of the auction.
Abstract: This research uses functional data modeling to study the price formation process in online auctions. It conceptualizes the price evolution and its first and second derivatives (velocity and acceleration respectively) as the primary objects of interest. Together these three functional objects permit us to talk about the dynamics of an auction, and how the influence of different factors vary throughout the auction. For instance, we find that the incremental impact of an additional bidder's arrival on the rate of price increase is smaller towards the end of the auction. Our analysis suggests that ''stakes'' do matter and that the rate of price increase is faster for more expensive items, especially at the start and the end of an auction. We observe that higher seller ratings (which correlate with experience) positively influence the price dynamics, but the effect is weaker in auctions with longer durations. Interestingly, we find that the price level is negatively related to auction duration when the seller has low rating whereas in auctions with high-rated sellers longer auctions achieve higher price levels throughout the auction, and especially at the start and end. Our methodological contributions include the introduction of functional data analysis as a useful toolkit for exploring the structural characteristics of electronic markets.
TL;DR: In this paper, the authors use both the new facts and the new quantitative models to revisit an old question, namely, that of quantifying the welfare benefits of low inflation, and propose a new model that includes two types of assumptions.
Abstract: Recent years have seen substantial prog? ress in our understanding of pricing decisions at the micro level. Access to large-scale data sources on prices of individual products has given us rich information on how frequently prices change, by what magnitude, and how the aggregation of price changes in individual firms maps into aggregate inflation (see, among many others, Mark Bils and Peter J. Klenow 2005). These facts about price movements are a key input in recent quantitative models of the aggre? gate effects of nominal rigidities (e.g., Mikhail Golosov and Robert E. Lucas 2007). In this paper, we use both the new facts and the new quantitative models to revisit an old question, namely, that of quantifying the welfare benefits of low inflation. Our model includes two
TL;DR: This paper studies modeling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes, and shows that local implied volatilities and price level provide a natural and simple parametrization of all option price models satisfying the natural static arbitrage bounds across strikes.
Abstract: This paper studies modeling and existence issues for market models of option prices in a continuous-time framework with one stock, one bond and a family of European call options for one fixed maturity and all strikes. After arguing that (classical) implied volatilities are ill-suited for constructing such models, we introduce the new concepts of local implied volatilities and price level. We show that these new quantities provide a natural and simple parametrization of all option price models satisfying the natural static arbitrage bounds across strikes. We next characterize absence of dynamic arbitrage for such models in terms of drift restrictions on the model coefficients. For the resulting infinite system of SDEs for the price level and all local implied volatilities, we then study the question of solvability and provide sufficient conditions for existence and uniqueness of a solution. We give explicit examples of volatility coefficients satisfying the required assumptions, and hence of arbitrage-free multi-strike market models of option prices.
TL;DR: The current food crisis has several causes, such as high demand for food and feed, biofuels, high oil prices, climate change, and stagnant agricultural productivity growth, but there is increasing evidence that the crisis is being made worse by the malfunctioning of world grain markets.
Abstract: "The current food crisis has several causesrising demand for food and feed, biofuels, high oil prices, climate change, stagnant agricultural productivity growthbut there is increasing evidence that the crisis is being made worse by the malfunctioning of world grain markets. Given the thinness of major markets for cereals, the restrictions on grain exports imposed by dozens of countries have resulted in additional price increases. A number of countries have adopted retail price controls, creating perverse incentives for producers. Speculative bubbles have built up, and the gap between cash and futures prices has risen, stimulating overregulation in some countries and causing some commodity exchanges in Africa and Asia to halt grain futures trading. Some food aid donors have defaulted on food aid contracts. The World Food Programme (WFP) has had difficulty getting quick access to grain for its humanitarian operations. Developing countries are urgently rebuilding their national stocks and re-examining the merits of self-sufficiency policies for food security despite high costs. These reactions began as consequences, not causes, of the price crisis, but they exacerbate the crisis and increase the risks posed by high prices. By creating a feedback loop with high food prices, they further increase price levels and volatility, with adverse consequences for the poor and for long-term incentives for agricultural production. Because they impede the free flow of food to where it is most needed and undermine the flow of price signals to farmers, these market failures impose enormous efficiency losses on the global food system, hitting the poorest countries and people hardest." from Author's text
TL;DR: In this paper, the authors use Nielsen scanner panel data on four categories of consumer goods to examine how TV advertising and other marketing activities affect the demand curve facing a brand and find that advertising has a greater positive effect on the WTP of infra-marginal consumers.
Abstract: In this paper we use Nielsen scanner panel data on four categories of consumer goods to examine how TV advertising and other marketing activities affect the demand curve facing a brand. Advertising can affect consumer demand in many different ways. Becker and Murphy (Quarterly Journal of Economics 108:941–964, 1993) have argued that the “presumptive case” should be that advertising works by raising marginal consumers’ willingness to pay for a brand. This has the effect of flattening the demand curve, thus increasing the equilibrium price elasticity of demand and the lowering the equilibrium price. Thus, “advertising is profitable not because it lowers the elasticity of demand for the advertised good, but because it raises the level of demand.” Our empirical results support this conjecture on how advertising shifts the demand curve for 17 of the 18 brands we examine. There have been many prior studies of how advertising affects two equilibrium quantities: the price elasticity of demand and/or the price level. Our work is differentiated from previous work primarily by our focus on how advertising shifts demand curves as a whole. As Becker and Murphy pointed out, a focus on equilibrium prices or elasticities alone can be quite misleading. Indeed, in many instances, the observation that advertising causes prices to fall and/or demand elasticities to increase, has misled authors into concluding that consumer “price sensitivity” must have increased, meaning the number of consumers’ willing to pay any particular price for a brand was reduced—perhaps because advertising makes consumers more aware of substitutes. But, in fact, a decrease in the equilibrium price is perfectly consistent with a scenario where advertising actually raises each individual consumer’s willingness to pay for a brand. Thus, we argue that to understand how advertising affects consumer price sensitivity one needs to estimate how it shifts the whole distribution of willingness to pay in the population. This means estimating how it shifts the shape of the demand curve as a whole, which in turn means estimating a complete demand system for all brands in a category—as we do here. We estimate demand systems for toothpaste, toothbrushes, detergent and ketchup. Across these categories, we find one important exception to conjecture that advertising should primarily increase the willingness to pay of marginal consumers. The exception is the case of Heinz ketchup. Heinz advertising has a greater positive effect on the WTP of infra-marginal consumers. This is not surprising, because Heinz advertising focuses on differentiating the brand on the “thickness” dimension. This is a horizontal dimension that may be highly valued by some consumers and not others. The consumers who most value this dimension have the highest WTP for Heinz, and, by focusing on this dimension; Heinz advertising raises the WTP of these infra-marginal consumers further. In such a case, advertising is profitable because it reduces the market share loss that the brand would suffer from any given price increase. In contrast, in the other categories we examine, advertising tends to focus more on vertical attributes.
TL;DR: In this paper, the authors investigate monetary policy design when central bank and private-sector expectations differ and show that stabilization policy is best implemented by controlling the path of the price level rather than the inflation rate.
TL;DR: In this article, Kano's model of customer satisfaction is applied to categorize eight different dimensions of price perception according to their asymmetric impact on satisfaction, and the results indicate that price level, value for money and special offers are both satisfiers and dissatisfiers.
TL;DR: In this article, the authors discuss consumers' cognitive and emotional reaction to posted prices and explain why firms charge prices below marginal cost for many goods and why they keep their prices rigid.
Abstract: This paper starts by discussing consumers' cognitive and emotional reaction to posted prices. Cognitively, some consumers do not appear to make effective use of price information to maximize their consumption-based utility. Emotionally, prices can induce regret and anger among consumers. The optimal responses of firm's prices to these reactions can explain why firms charge prices below marginal cost for many goods and why they keep their prices rigid. This explanation of price rigidity has the advantage of being consistent with the observation that the typical size of price increases is nearly invariant to inflation. Lastly, the paper turns to some government policies regarding prices that appear to have some consumer support. It argues that both laws against price gouging and laws regulating the terms of mortgages may have support because consumers recognize that many people do not optimize their consumption effectively and because they are angry at firms that take advantage of this. These attitudes can also explain consumer support for monetary policies that maintain a low level of average inflation.
TL;DR: In this paper, the authors investigated the effect of partitioned prices containing a variable number of price components, under varying levels of seller trustworthiness, and with or without the presentation of the total price.
TL;DR: In this article, a Cointegration and Error-Correction Model (ECM) was used to analyze the impact of the Ethiopian coffee marketing system on the domestic coffee market.
Abstract: Coffee producers in Ethiopia have historically received a very small share of the export price of green coffee. Reasons that are often mentioned are heavy government intervention and high marketing and processing costs. Prior to 1992, government regulation of the domestic coffee market in the form of fixed producer prices and the monopoly power of the Ethiopian Coffee Marketing Corporation put a substantial wedge between the producer price and the world price of coffee by imposing an implicit tax on producers. The domestic coffee marketing system in Ethiopia was liberalised after 1992, which was envisaged to have a positive effect on producer prices and price transmission signals from world markets to producers. This paper, with the help of Cointegration and Error-Correction Model (ECM), attempts to analyse its impact. As findings indicate, the reforms induced stronger long-run relationships among grower, wholesaler and exporter prices. The estimation of the ECM shows that the short-run transmission of price signals from world to domestic markets has improved, but has remained weak in both auction-to-world and producer-to-auction markets. This might be explained by the weak institutional arrangement coordinating the domestic coffee system and contract enforcement. In general, the domestic price adjusts more rapidly to world price changes today than it did prior to the reforms. However, there is an indication that negative price changes transmit much faster than positive ones.
TL;DR: In this paper, the authors find that small price increases occur more frequently than small price decreases for price changes of up to 10¢ and that substantial proportion of the asymmetry remains unexplained, even after accounting for the inflation.