Are "Rockets and Feathers" Caused by Search or Informational Frictions
AbstractPrices usually adjust much faster when costs increase than when costs decrease. The mechanism driving this "Rockets-and-Feathers" phenomenon is not well understood despite of ample empirical evidence for its existence. We use simple experimental markets with and without consumer search and either privately or publicly observed cost shocks to study this puzzle. In contrast to the theoretical predictions, we observe price dispersion and asymmetric price adjustment in all four settings. We attribute the pricing behavior to bounded rationality and its interaction with adaptive expectations. We conclude that neither search costs nor private information are indispensable for prices to adjust asymmetrically.
Download InfoIf 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.
Bibliographic InfoPaper provided by Max Planck Institute for Tax Law and Public Finance in its series Working Papers with number are_rockets_and_feathers_caused_by_search_or_informational_frictions.
Length: 37 pages
Date of creation: Sep 2011
Date of revision:
Asymmetric Price Adjustment; Price Dispersion; Adaptive Search; Bounded Rationality;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-25 (All new papers)
- NEP-COM-2012-01-25 (Industrial Competition)
- NEP-CTA-2012-01-25 (Contract Theory & Applications)
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.:
- Grether, David M & Schwartz, Alan & Wilde, Louis L, 1988.
"Uncertainty and Shopping Behaviour: An Experimental Analysis,"
Review of Economic Studies,
Wiley Blackwell, vol. 55(2), pages 323-42, April.
- Grether, David M. & Schwartz, Alan & Wilde, Louis L., . "Uncertainty and Shopping Behavior: An Experimental Analysis," Working Papers 511, California Institute of Technology, Division of the Humanities and Social Sciences.
- Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July.
- Galeotti, Marzio & Lanza, Alessandro & Manera, Matteo, 2003.
"Rockets and feathers revisited: an international comparison on European gasoline markets,"
Elsevier, vol. 25(2), pages 175-190, March.
- M. Galeotti & A. Lanza & M. Manera, 2001. "Rockets and feathers revisited: an international comparison on European gasoline markets," Working Paper CRENoS 200112, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
- Matthew S. Lewis & Howard P. Marvel, 2011. "When Do Consumers Search?," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 457-483, 09.
- Duffy-Deno, Kevin T., 1996. "Retail price asymmetries in local gasoline markets," Energy Economics, Elsevier, vol. 18(1-2), pages 81-92, April.
- David, Douglas D & Holt, Charles A, 1996. "Consumer Search Costs and Market Performance," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 133-51, January.
- repec:cdl:compol:23177 is not listed on IDEAS
- Matthew S. Lewis, 2011.
"Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 20(2), pages 409-449, 06.
- Lewis, Matt, 2004. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Competition Policy Center, Working Paper Series qt9pv2d9fn, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Matt Lewis, 2004. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Industrial Organization 0407010, EconWPA.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Martin Sefton & Abdullah Yavas & Eric Abrams, 2000. "An experimental comparison of two search models," Economic Theory, Springer, vol. 16(3), pages 735-749.
- Mariano Tappata, 2009. "Rockets and feathers: Understanding asymmetric pricing," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 673-687.
- Andrew Eckert, 2002. "Retail price cycles and response asymmetry," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 52-77, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hans Mueller).
If references are entirely missing, you can add them using this form.