Inflation and Costly Price Adjustment: A Study of Canadian Newspaper Prices

Abstract

The paper studies the effect of inflation on price behaviour using price data from Canadian daily newspapers. We test the Sheshinski and Weiss (1977) monopoly price adjustment model on a sample of monopolistic as well as oligopolistic newspapers, in contrast to earlier studies that used data from oligopolistic or monopolistically competitive markets. The results depend crucially on the assumptions about how often the firm collects information and revises its optimal pricing policy. With infrequent policy revisions, the results for monopoly newspapers support the model. The results for oligopoly newspapers are similar.

Asymmetric price adjustment in the small

“…See also Cecchetti (1986), Rotemberg (1987), Basu (1995), Danziger (1999, Ball and Romer (2003), Konieczny and Skrzypacz (2005), and Fisher and Konieczny (2006).…”

The frequency and costs of individual price adjustment

“…First, Tucker (1938) used other data sources to argue that prices changed less frequently in the 19th century than during the 1929-1933 period. Second, Scitovszky (1941) Chakrabarti and Scholnick (2001) Internet booksellers Dutta et al (2002) Orange juice Dutta et al (1999) Drugstores Eden (2001) Groceries in Israel, 1978-1984Hosken et al (2004 Food prices from the US CPI Kashyap (1995) Consumer goods in catalogs, 1953-1987Lach and Tsiddon (1992, 1996 Groceries in Israel, 1978-1984Levy et al (2002a Orange juice Levy et al (1997) Groceries Levy et al (2002b) Dominicks supermarket Young (2004, 2005) Coca-Cola Noel (2005) Wholesale gasoline Owen and Trzepacz (2002) Groceries Ra´tfai (2007) Retail meat in Hungary, 1993-1996Slade (1998 Saltines Young and Blue (forthcoming) Consumer goods in catalogs, 1938-1951Young and Levy (2005 Coca-Cola Cecchetti (1985Cecchetti ( , 1986) Magazines Fisher and Konieczny (2006) Newspapers in Canada, 1965-1990Mussa (1981 Newspapers in Germany, 1920s Weiss (1993) Newspapers in Germany, 1920s Willis (2000) Magazines…”

“…Recall Slade's concepts of goodwill and normal prices, and Davis and Hamilton's conjecture that customer and competitor reactions are important determinants of pricing behavior by gasoline wholesalers. Chakrabarti and Scholnick (2001), Young and Levy (2005) and Fisher and Konieczny (2006) study markets which point strongly toward the importance of non-menu costs of price adjustment. Chakrabarti and Scholnick (2001) use the behavior of prices at Internet booksellers to identify non-menu costs.…”

“…31 Cumulative inflation of several hundred percent since the 1950s means that there are very few goods in the United States for which similar statements can be made today. Fisher and Konieczny (2006) study newspaper prices in Canada from 1965 to 1990 using versions of the Sheshinski-Weiss (1977) model. They find that the data are consistent with a version of the model in which firms choose the criterion for next adjustment at the time of the current adjustment.…”

The mechanics of price adjustment: new evidence on the (un)importance of menu costs

“…4. In a more recent paper on Canadian newspaper pricing, Fisher and Konieczny (2006) stress other aspects of price determination like the frequency of revisions in optimal price policy. 5.…”