Consumption Inertia and Asymmetric Price Transmission
We propose consumption inertia as a new explanation for asymmetric price transmission. Inertia in consumer demand enlarges retailersâ€™ gains in gross profits from raising prices in response to higher wholesale prices and reduces gains from decreasing prices in response to lower wholesale prices. Thus, consumption inertia can cause asymmetries in price transmission whereby retailers are more willing to change their prices, and change them more quickly, in response to wholesale price increases as opposed to wholesale price decreases.
Volume (Year): 35 (2010)
Issue (Month): 2 (August)
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- Villas-Boas, Sofia B., 2007. "Vertical relationships between manufacturers and retailers: inference with limited data," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6gz1t778, Department of Agricultural & Resource Economics, UC Berkeley.
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