Advanced Search
MyIDEAS: Login to save this article or follow this journal

The response of prices, sales, and output to temporary changes in demand

Contents:

Author Info

  • Adam Copeland
  • George Hall

Abstract

We determine empirically how automakers accommodate shocks to demand. Using data on production, sales, and transaction prices, we estimate a dynamic profit maximization model of the firm. We demonstrate that when an automaker is hit with a vehicle-specific demand shock, sales respond immediately and prices respond very modestly. Further, when accounting for non‐convexities in the cost function, production responds with a delay. Over time, shocks are absorbed almost entirely through adjustments in sales and production rather than prices. We examine two recent demand shocks: the Ford Explorer/Firestone tire recall of 2000, and the 11 September 2001 terrorist attacks. Copyright (C) 2009 John Wiley & Sons, Ltd.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1002/jae.1120
Download Restriction: no

Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 26 (2011)
Issue (Month): 2 (March)
Pages: 232-269

as in new window
Handle: RePEc:wly:japmet:v:26:y:2011:i:2:p:232-269

Contact details of provider:
Web page: http://www.interscience.wiley.com/jpages/0883-7252/

Order Information:
Email:
Web: http://www3.interscience.wiley.com/jcatalog/subscribe.jsp?issn=0883-7252

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. John Rust & Hui Man Chan & George Hall, 2004. "Price Discrimination in the Steel Market," 2004 Meeting Papers, Society for Economic Dynamics 44, Society for Economic Dynamics.
  2. Marzio Galeotti & Louis J. Maccini & Fabio Schiantarelli, 2002. "Inventories, Employment and Hours," Boston College Working Papers in Economics, Boston College Department of Economics 522, Boston College Department of Economics.
  3. T. M. Whitin, 1955. "Inventory Control and Price Theory," Management Science, INFORMS, INFORMS, vol. 2(1), pages 61-68, October.
  4. Adam Copeland & Wendy Dunn & George Hall, 2005. "Prices, production, and inventories over the automotive model year," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-25, Board of Governors of the Federal Reserve System (U.S.).
  5. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 5(1), pages 73-96, Winter.
  6. James A. Kahn & Mark Bils, 2000. "What Inventory Behavior Tells Us about Business Cycles," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 458-481, June.
  7. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 703-08, May.
  8. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 400-430, June.
  9. Godley, Wynne A H & Nordhaus, William D, 1972. "Pricing in the Trade Cycle," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 82(327), pages 853-82, September.
  10. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 674-89, September.
  11. Topel, Robert H, 1982. "Inventories, Layoffs, and the Short-Run Demand for Labor," American Economic Review, American Economic Association, American Economic Association, vol. 72(4), pages 769-87, September.
  12. Haltiwanger, John C & Maccini, Louis J, 1988. "A Model of Inventory and Layoff Behaviour under Uncertainty," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 98(392), pages 731-45, September.
  13. Hall, George J., 2000. "Non-convex costs and capital utilization: A study of production scheduling at automobile assembly plants," Journal of Monetary Economics, Elsevier, Elsevier, vol. 45(3), pages 681-716, June.
  14. Alan S. Blinder & Louis J. Maccini, 1990. "The Resurgence of Inventory Research: What Have We Learned?," NBER Working Papers 3408, National Bureau of Economic Research, Inc.
  15. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
  16. Rossana, Robert J, 1990. "Interrelated Demands for Buffer Stocks and Productive Inputs: Estimates for Two-Digit Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 19-29, February.
  17. Maccini, Louis J & Rossana, Robert J, 1984. "Joint Production, Quasi-Fixed Factors of Production, and Investement in Finished Goods Inventories," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 16(2), pages 218-36, May.
  18. Valerie A. Ramey & Daniel J. Vine, 2005. "Tracking the source of the decline in GDP volatility: an analysis of the automobile industry," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-14, Board of Governors of the Federal Reserve System (U.S.).
  19. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De.
  20. Aguirregabiria, Victor, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(2), pages 275-308, April.
  21. Bresnahan, Timothy F & Ramey, Valerie A, 1994. "Output Fluctuations at the Plant Level," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(3), pages 593-624, August.
  22. Hay, George A, 1970. "Production, Price, and Inventory Theory," American Economic Review, American Economic Association, American Economic Association, vol. 60(4), pages 531-45, September.
  23. Carol Corrado & Wendy Dunn & Maria Otoo, 2006. "Incentives and prices for motor vehicles: what has been happening in recent years?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-09, Board of Governors of the Federal Reserve System (U.S.).
  24. Anderson, Patricia M & Meyer, Bruce D, 1993. "Unemployment Insurance in the United States: Layoff Incentives and Cross Subsidies," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 11(1), pages S70-95, January.
  25. Wedad Elmaghraby & P{\i}nar Keskinocak, 2003. "Dynamic Pricing in the Presence of Inventory Considerations: Research Overview, Current Practices, and Future Directions," Management Science, INFORMS, INFORMS, vol. 49(10), pages 1287-1309, October.
  26. Haltiwanger, John C. & Maccini, Louis J., 1989. "Inventories, orders, temporary and permanent layoffs: An econometric analysis," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 30(1), pages 301-366, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Florian Zettelmeyer & Fiona Scott Morton & Jorge Silva-Risso, 2006. "Scarcity Rents in Car Retailing: Evidence from Inventory Fluctuations at Dealerships," NBER Working Papers 12177, National Bureau of Economic Research, Inc.
  2. Šustek, Roman, 2011. "Plant-level nonconvex output adjustment and aggregate fluctuations," Journal of Monetary Economics, Elsevier, Elsevier, vol. 58(4), pages 400-414.
  3. McManus, Walter, 2007. "The link between gasoline prices and vehicle sales:economic theory trumps conventional Detroit wisdom," MPRA Paper 3463, University Library of Munich, Germany.
  4. Adam Copeland & James Kahn, 2011. "The production impact of "cash-for-clunkers": implications for stabilization policy," Staff Reports, Federal Reserve Bank of New York 503, Federal Reserve Bank of New York.
  5. Friberg, Richard & Huse, Cristian, 2012. "How to use demand systems to evaluate risky projects, with an application to automobile production," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9266, C.E.P.R. Discussion Papers.
  6. Adam Copeland & James A. Kahn, 2012. "Exchange rate pass-through, markups, and inventories," Staff Reports, Federal Reserve Bank of New York 584, Federal Reserve Bank of New York.
  7. James Kahn & Adam Copeland, 2012. "Durable Goods Production and Inventory Dynamics: An Application to the Automobile Industry," 2012 Meeting Papers, Society for Economic Dynamics 270, Society for Economic Dynamics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wly:japmet:v:26:y:2011:i:2:p:232-269. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.