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Price Response, Asymmetric Information, and Competition

  • Joshua Sherman
  • Avi Weiss

    ()

    (Bar-Ilan University)

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.

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File URL: http://econ.biu.ac.il/files/economics/working-papers/2012-13.pdf
File Function: Working paper
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Paper provided by Bar-Ilan University, Department of Economics in its series Working Papers with number 2012-13.

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Length: 43 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:biu:wpaper:2012-13
Contact details of provider: Postal: Faculty of Social Sciences, Bar Ilan University 52900 Ramat-Gan
Phone: Phone: +972-3-5318345
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Web page: http://www.biu.ac.il/soc/ec
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