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Price Dynamics in Repeat-Purchase Markets

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Author Info

  • Sibly, Hugh

Abstract

A retail market in which customers repeat purchase is modeled. When customer movement between firms is sluggish, price overshooting characterizes firms' optimal response to demand or cost shocks. Thus retail prices would be predicted to be more variable than wholesale prices, a prediction at variance with empirical evidence. Uncertainty in demand and customer imperfect information are introduced into the model to attempt to reconcile this inconsistency between theory and evidence. The introduction of demand uncertainty actually increases the magnitude of price overshooting. By contrast, the introduction of imperfect customer information reduces the variability in retail prices. Copyright 1995 by The Economic Society of Australia.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 71 (1995)
Issue (Month): 213 (June)
Pages: 179-90

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Handle: RePEc:bla:ecorec:v:71:y:1995:i:213:p:179-90

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Cited by:
  1. Ali Choudhary & Thorlakur Karlsson & Gylfi Zoega, 2009. "Survey Evidence on Customer Markets," Economics wp45, Department of Economics, Central bank of Iceland.

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