Asymmetric Price Adjustment in the Small

Levy, Daniel and Chen, Haipeng (Allan) and Ray, Sourav and Bergen, Mark (2006): Asymmetric Price Adjustment in the Small.

Abstract

Analyzing a large weekly retail transaction price dataset, we uncover a surprising regularity—small price increases occur more frequently than small price decreases for price changes of up to about 10 cents, while there is no such asymmetry for larger price changes. The asymmetry holds for the entire sample and for individual categories. We find that while inflation can explain some of the asymmetry, inflation is not the whole story as the asymmetry holds even after excluding inflationary periods from the data, and even for products whose price had not increased over the eight-year period. The findings hold for different measures of inflation and also after allowing for lagged price adjustments. We offer a consumer-based explanation for these findings.

• Item Type: MPRA Paper
• Institution: Bar-Ilan University, University of Miami, McMaster University, and University of Minnesota
• Language: English
• Keywords: Asymmetric Price Adjustment; Price Rigidity; Rational Inattention; Rational Ignorance
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M31 - Marketing; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation

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