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Price Response, Asymmetric Information, and Competition

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  • Joshua Sherman
  • Avi Weiss

    (Bar-Ilan University)

Abstract

We compare predictions from a theoretical model based on the structure of the main outdoor retail market in Jerusalem with the results of an empirical analysis of price response to changes in cost. We find that firms without adjacent competition exhibit both upward and downward price rigidity, an outcome we ascribe to asymmetric information between the consumer and the firm. Given that previous studies have focused on downward price rigidities of firms with market power, our findings highlight the importance of accounting for transitory information asymmetries between the consumer and the firm when studying price rigidity.

Suggested Citation

  • Joshua Sherman & Avi Weiss, 2012. "Price Response, Asymmetric Information, and Competition," Working Papers 2012-13, Bar-Ilan University, Department of Economics.
    • Handle: RePEc:biu:wpaper:2012-13
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    Cited by:

    1. Giulietti, Monica & Otero, Jesús & Waterson, Michael, 2020. "Rigidities and adjustments of daily prices to costs: Evidence from supermarket data," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    2. Carlo Russo & Rachael Goodhue, 2018. "Farmgate prices, retail prices, and supermarkets' pricing decisions: An integrated approach," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 24-43, December.
    3. Maarten Janssen & Sandro Shelegia, 2020. "Beliefs and Consumer Search in a Vertical Industry [Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?]," Journal of the European Economic Association, European Economic Association, vol. 18(5), pages 2359-2393.
    4. Maarten Janssen & Sandro Shelegia, 2015. "Beliefs and Consumer Search," Vienna Economics Papers 1501, University of Vienna, Department of Economics.
    5. Joshua Sherman & Avi Weiss, 2017. "On Fruitful And Futile Tests Of The Relationship Between Search And Price Dispersion," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1898-1918, October.

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    More about this item

    Keywords

    price response; price rigidity; information asymmetry; market power;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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