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Magazine prices revisited

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  • Jonathan L. Willis

Abstract

This paper examines price adjustment behavior in the magazine industry. In a frequently cited study, Cecchetti (1986) constructs a reduced-form (S,s) model for firms. Cecchetti assumes that a firm's pricing rules are fixed for non-overlapping three-year intervals and estimates the model using a conditional logit specification from Chamberlain (1980). The estimates are inconsistent, however, due to the state-dependent specification of the model. I illustrate the econometric problems in Cecchetti's results through a Monte Carlo exercise and then suggest a method for producing consistent estimates based upon Heckman and Singer (1984). The corrected results provide strong support for models of state-dependent pricing.

Suggested Citation

  • Jonathan L. Willis, 2001. "Magazine prices revisited," Research Working Paper RWP 01-15, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:rwp01-15
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    1. Victor Aguirregabiria, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(2), pages 275-308.
    2. Jonathan L. Willis, 2006. "Magazine prices revisited," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(3), pages 337-344, April.
    3. Arellano, Manuel & Honore, Bo, 2001. "Panel data models: some recent developments," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 53, pages 3229-3296, Elsevier.
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    6. Margaret E. Slade & G.R.E.Q.A.M., 1998. "Optimal Pricing with Costly Adjustment: Evidence from Retail-Grocery Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(1), pages 87-107.
    7. Bo E. Honoré & Luojia Hu, 2004. "Estimation of Discrete Time Duration Models with Grouped Data," CAM Working Papers 2004-07, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    8. Card, David & Sullivan, Daniel G, 1988. "Measuring the Effect of Subsidized Training Programs on Movements in and out of Employment," Econometrica, Econometric Society, vol. 56(3), pages 497-530, May.
    9. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 225-238.
    10. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    11. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
    12. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    13. Eytan Sheshinski & Yoram Weiss, 1977. "Inflation and Costs of Price Adjustment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(2), pages 287-303.
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    Cited by:

    1. Denis Fougère & Erwan Gautier & Hervé Le Bihan, 2010. "Restaurant Prices and the Minimum Wage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1199-1234, October.
    2. David Staines, 2023. "Stochastic Equilibrium the Lucas Critique and Keynesian Economics," Papers 2312.16214, arXiv.org.
    3. Siddharth Shirodkar & Boyd Hunter, 2019. "Factors underlying the likelihood of being in business for Indigenous and non-Indigenous Australians," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 22(1), pages 5-27.
    4. Knotek II, Edward S., 2008. "Convenient prices, currency, and nominal rigidity: Theory with evidence from newspaper prices," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1303-1316, October.
    5. Lein, Sarah M., 2010. "When do firms adjust prices? Evidence from micro panel data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 696-715, September.
    6. Aguirregabiria, Victor & Gu, Jiaying & Luo, Yao, 2021. "Sufficient statistics for unobserved heterogeneity in structural dynamic logit models," Journal of Econometrics, Elsevier, vol. 223(2), pages 280-311.
    7. Dhyne, Emmanuel & Fuss, Catherine & Pesaran, M. Hashem & Sevestre, Patrick, 2011. "Lumpy Price Adjustments: A Microeconometric Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(4), pages 529-540.
    8. John W. Keating & Isaac K. Kanyama, 2015. "Is sticky price adjustment important for output fluctuations?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(3), pages 392-418, July.
    9. Jonathan L. Willis, 2006. "Magazine prices revisited," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(3), pages 337-344.
    10. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1415-1464.
    11. William Greene, 2007. "Discrete Choice Modeling," Working Papers 07-6, New York University, Leonard N. Stern School of Business, Department of Economics.
    12. Erwan Gautier, 2009. "Les ajustements microéconomiques des prix : une synthèse des modèles théoriques et résultats empiriques," Revue d'économie politique, Dalloz, vol. 119(3), pages 323-372.
    13. Boyd Hunter & Matthew Gray & Heather Crawford, 2016. "Who Cares and Does it Matter for the Labour Market?: A Longitudinal Analysis of the Labour Force Status of Indigenous and Non-Indigenous Carers," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 19(1), pages 33-51.
    14. Dotsey, Michael & King, Robert G., 2005. "Implications of state-dependent pricing for dynamic macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 213-242, January.
    15. Kevin X. D. Huang & Jonathan L. Willis, 2018. "Sectoral Interactions and Monetary Policy under Costly Price Adjustments," Annals of Economics and Finance, Society for AEF, vol. 19(2), pages 337-374, November.

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