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Why Prices Rise Faster than they Fall

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  • Sheldon Kimmel

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    (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)

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    Abstract

    For decades the fact that input price hikes are passed on faster than input price cuts was thought to be well explained by the assumption that competitive firms fully pass on all input price changes, so they can't price asymmetrically, so asymmetric pricing behavior is limited to oligopolies, firms that do all sorts of bizarre things (finding yet another one being no big deal). However, Peltzman found no effect of concentration on such asymmetric pricing, raising the puzzle of why competitive industries generally price asymmetrically. This paper solves that puzzle.

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    File URL: http://www.justice.gov/atr/public/eag/248396.pdf
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    Bibliographic Info

    Paper provided by Department of Justice, Antitrust Division in its series EAG Discussions Papers with number 200904.

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    Length: 15 pages
    Date of creation: Jul 2009
    Date of revision:
    Handle: RePEc:doj:eagpap:200904

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    Postal: Department of Justice Antitrust Division 450 Fifth Street NW Washington, DC 20530
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    Web page: http://www.justice.gov/atr/
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    1. Jochen Meyer & Stephan Cramon-Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 581-611.
    2. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
    3. William J. Baumol & Richard E. Quandt & Harold T. Shapiro, 1964. "Oligopoly Theory and Retail Food Pricing," The Journal of Business, University of Chicago Press, vol. 37, pages 346.
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