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Price Response, Asymmetric Information, and Competition

Author

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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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    References listed on IDEAS

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    Cited by:

    1. Maarten Janssen & Sandro Shelegia, 2015. "Beliefs and Consumer Search," Vienna Economics Papers 1501, University of Vienna, Department of Economics.
    2. repec:bla:ecinqu:v:55:y:2017:i:4:p:1898-1918 is not listed on IDEAS

    More about this item

    Keywords

    price response; price rigidity; information asymmetry; market power;

    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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