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Search with learning: understanding asymmetric price adjustments

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Author Info

  • Huanxing Yang
  • Lixin Ye

Abstract

In many retail markets, prices rise faster than they fall. We develop a model of search with learning to explain this phenomenon of asymmetric price adjustments. By extending our static game analysis to the dynamic setting, we demonstrate that asymmetric price adjustments arise naturally. When a positive cost shock occurs, all the searchers immediately learn the true state; the search intensity, and hence the prices, fully adjust in the next period. When a negative cost shock occurs, it takes longer for nonsearchers to learn the true state, and the search intensity increases gradually, leading to slow falling of prices. Copyright (c) 2008, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 39 (2008)
Issue (Month): 2 ()
Pages: 547-564

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Handle: RePEc:bla:randje:v:39:y:2008:i:2:p:547-564

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Cited by:
  1. Castilla, Carolina & Haab, Timothy C., 2010. "Asymmetric Search and Loss Aversion: Choice Experiment on Consumer Willingness to Search in the Gasoline Retail Market," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61672, Agricultural and Applied Economics Association.
  2. Dmitry Lubensky, 2013. "A Model of Recommended Retail Prices," Working Papers 2013-14, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Marc Hofstetter & Jorge Tovar, 2010. "Common Knowledge Reference Price and Asymmetric Price Adjustments," Review of Industrial Organization, Springer, vol. 37(2), pages 141-159, September.
  4. Karadi, Peter & Reiff, Adam, 2012. "Large shocks in menu cost models," Working Paper Series 1453, European Central Bank.
  5. Frieder Mokinski & Nikolas Wölfing, 2014. "The effect of regulatory scrutiny: Asymmetric cost pass-through in power wholesale and its end," Journal of Regulatory Economics, Springer, vol. 45(2), pages 175-193, April.
  6. Riemer P. Faber, 2009. "Asymmetric Price Responses of Gasoline Stations: Evidence for Heterogeneity of Retailers," Tinbergen Institute Discussion Papers 09-106/1, Tinbergen Institute.
  7. Obradovits, Martin, 2012. "Austrian-style gasoline price regulation: How it may backfire," MPRA Paper 42529, University Library of Munich, Germany.
  8. Maarten Janssen & Alexei Parakhonyak & Anastasia Parakhonyak, 2014. "Non-reservation price equilibria and Consumer search," HSE Working papers WP BRP 51/EC/2014, National Research University Higher School of Economics.
  9. Riemer P. Faber, 2009. "Asymmetric Price Responses of Gasoline Stations: Evidence for Heterogeneity of Retailers," Tinbergen Institute Discussion Papers 09-106/1, Tinbergen Institute.
  10. Luís Cabral & Arthur Fishman, 2011. "Business as Usual: A Consumer Search Theory of Sticky Prices and Asymmetric Price Adjustment," Working Papers 2011-01, Department of Economics, Bar-Ilan University.
  11. Dmitry Lubensky, 2011. "A Model of Recommended Retail Prices," Working Papers 2011-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  12. Marc Hofstetter & Jorge Tovar, 2007. "Asymmetric Price Adjustments Under Ever-Increasing Costs. Evidence from the Retail Gasoline Market in Colombia," DOCUMENTOS CEDE 005146, UNIVERSIDAD DE LOS ANDES-CEDE.
  13. Diego Escobari, 2013. "Asymmetric Price Adjustments in Airlines," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 34(2), pages 74-85, 03.

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