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Consumption Inertia and Asymmetric Price Transmission

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  • Xia, Tian
  • Li, Xianghong
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Abstract

We propose consumption inertia as a new explanation for asymmetric price transmission. Inertia in consumer demand enlarges retailers’ gains in gross profits from raising prices in response to higher wholesale prices and reduces gains from decreasing prices in response to lower wholesale prices. Thus, consumption inertia can cause asymmetries in price transmission whereby retailers are more willing to change their prices, and change them more quickly, in response to wholesale price increases as opposed to wholesale price decreases.

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File URL: http://purl.umn.edu/93210
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Bibliographic Info

Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 35 (2010)
Issue (Month): 2 (August)
Pages:

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Handle: RePEc:ags:jlaare:93210

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Web page: http://waeaonline.org/
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Related research

Keywords: asymmetric price transmission; consumption inertia; market power; retail pricing; Demand and Price Analysis;

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  1. Matteo Manera & Giliola Frey, 2005. "Econometric Models of Asymmetric Price Transmission," Working Papers 2005.100, Fondazione Eni Enrico Mattei.
  2. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 625-652.
  3. von Cramon-Taubadel, Stephan, 1998. "Estimating Asymmetric Price Transmission with the Error Correction Representation: An application to the German Pork Market," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 25(1), pages 1-18.
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