Asymmetric price adjustment in the small

Chen, Haipeng; Lévy, Daniel; Ray, Sourav; Bergen, Mark

doi:10.1016/j.jmoneco.2008.05.002

Cited by 63 publications

(49 citation statements)

References 61 publications

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“…Studies suggest that there are fewer price decreases than increases that involve a change in the right-most digits because there are usually more frequent small (up to about 10 cents) price increases than decreases (Peltzman, 2000, Ray, et al 2006, Chen et al, 2008, Midrigan, 2011. We therefore expect that the sign of the coefficient of price decrease in the regression for the right-most digit will be negative but the coefficient of the interaction of the size of price changes and price decrease will be positive.…”

Section: Likelihood Of Changes In the Right-most Digitmentioning

confidence: 99%

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Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity

et al. 2012

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Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity AbstractThere is evidence that 9-ending prices are more common and more rigid than other prices. We use data from three sources: a laboratory experiment, a field study, and a large US supermarket chain, to study the cognitive underpinning and the ensuing asymmetry in rigidity associated with 9-ending prices. We find that consumers use 9-endings as a signal for low prices, and that this signal interferes with price information processing.Consequently, consumers are less likely to notice a bigger price when it ends with 9, or a price increase when the new price ends with 9, in comparison to a situation where the prices end with some other digit. We also find that retailers respond strategically to this consumer bias by setting 9-ending prices more often after price increases than after price decreases. 9-ending prices, therefore, usually increase only if the new prices are also 9-ending. Consequently, there is an asymmetry in the rigidity of 9-ending prices: they are more rigid than non 9-ending prices upward but not downward.1

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Section: Likelihood Of Changes In the Right-most Digitmentioning

confidence: 99%

“…Since heuristic information processing is more prevalent for more difficult tasks (Kahneman andFrederick, 2002, Thomas andMorwitz, 2005;Chen, et al, 2008), we expect that participants will use 9-endings as a signal more often in the cognitively more difficult find-small price condition than in the find-large price condition.…”

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confidence: 99%

Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity

et al. 2012

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“…Consequently, we use an environment where price dispersion is not an equilibrium in order to see if we still see price dispersion in 1 There also exist theories developed by macroeconomists, suggesting that asymmetric adjustment occurs if …rms (facing nominal shocks) have to pay menu cost to adjust the prices under an in ‡ationary trend (Tsiddon 1993;Ball and Mankiw 1994;Ellingsen et al 2006). However, Chen et al (2008) …nd that asymmetric price adjustment still occurs in the …eld in periods when there is no in ‡ation. the laboratory.…”

Section: Background and …Ndingsmentioning

confidence: 99%

Rockets and Feathers in the Laboratory

Bayer

2011

SSRN Journal

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Consumers often complain that retail prices respond faster to increases in wholesale prices than to decreases. Despite many empirical studies con…rming this "Rockets-and-Feathers"phenomenon for di¤erent industries, the mechanism driving it is not well understood. In this paper, we show that, in contrast to the theoretical prediction, asymmetric price adjustment to cost shocks, as well as price dispersion, arises in experimental Diamond (1971) markets. The analysis of individual behavior suggests that the observed price dispersion can be explained by bounded rationality, as our data are well explained by Quantal Response Equilibrium (McKelvey and Palfrey 1995). Asymmetric price adjustment is caused by the updating speed of buyers with adaptive expectations being di¤erent after positive and negative cost shocks.

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“…The very asymmetric response in the nominal interest rate under the optimal policy allows a smoother, less asymmetric response on the part of consumption, output and real balances to productivity shocks. 12 …”

Section: Optimal Responsesmentioning

confidence: 99%