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The Flood that Caused a Drought

Author

Listed:
  • Alex Nikolsko-Rzhevskyy

    (Lehigh University)

  • Oleksandr Talavera

    (University of Birmingham)

  • Nam Vu

    (NHS England & Improvement)

Abstract

This paper uses a unique dataset to study the effects of an exogenous supply shock on product availability, prices, and price setting behavior. Our analysis explores a natural experiment involving the 2011 flood in Thailand, which affected the production facilities of Western Digital (WD), the world’s largest hard-drive producer. This foreign-born natural disaster affected the inventory of hard drives in the U.S., which availability declined by more than 40%. Our findings suggest that prices of WD and non-WD hard disk drives (HDD) increased as much as 38% and 14%, respectively, within six months following this exogenous supply shock. However, pricing of solid-state drives (SSD), the closest substitute for HDD products, experienced a much weaker response. Furthermore, there is little evidence of any changes in the price-setting of final goods (desktops and laptops) or complementary components (processors and motherboards). This suggests that the shock transmission is likely to be absorbed in production networks.

Suggested Citation

  • Alex Nikolsko-Rzhevskyy & Oleksandr Talavera & Nam Vu, 2020. "The Flood that Caused a Drought," Discussion Papers 20-14, Department of Economics, University of Birmingham.
    • Handle: RePEc:bir:birmec:20-14
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    More about this item

    Keywords

    supply shock; inventory; price stickiness; hard drive; natural disaster;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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