The Relation between Inventory Investment and Price Dynamics in a Distributive Firm
In this paper, we examine the role of inventory in the price-setting behavior of a distributive firm. Empirically, we show that probability of price change has a positive relation to the scale of the retailer’s storage and the frequency of its bargain sales. We also show a negative relation between the frequency of bargain sales and the price elasticity of demand. These results denote that price stickiness varies by the retailers’ characteristics. In this paper, we consider that the hidden mechanism of price stickiness comes from the retailer’s policy for inventory investment. We develop a partial equilibrium model of the retailer’s optimization behavior with inventory and financial restrictions. The results of the numerical experiments suggest that price change frequency depends on the retailer’s order cost, storage cost, and menu cost.
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- Anil K. Kashyap, 1990.
"Sticky prices: new evidence from retail catalogs,"
Finance and Economics Discussion Series
112, Board of Governors of the Federal Reserve System (U.S.).
- Anil K Kashyap, 1994. "Sticky Prices: New Evidence from Retail Catalogs," NBER Working Papers 4855, National Bureau of Economic Research, Inc.
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- Oleksiy Kryvtsov & Virgiliu Midrigan, 2009.
"Inventories, Markups, and Real Rigidities in Menu Cost Models,"
NBER Working Papers
14651, National Bureau of Economic Research, Inc.
- Oleksiy Kryvtsov & Virgiliu Midrigan, 2013. "Inventories, Markups, and Real Rigidities in Menu Cost Models," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 249-276.
- Oleksiy Kryvtsov & Virgiliu Midrigan, 2009. "Inventories, Markups, and Real Rigidities in Menu Cost Models," Working Papers 09-6, Bank of Canada.
- Virgiliu Midrigan & Oleksiy Kryvtsov, 2008. "Inventories, Markups, and Real Rigidities in Menu Cost Models," 2008 Meeting Papers 487, Society for Economic Dynamics.
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"Some Evidence on the Importance of Sticky Prices,"
Journal of Political Economy,
University of Chicago Press, vol. 112(5), pages 947-985, October.
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- Abe, Naohito & Tonogi, Akiyuki, 2010. "Micro and macro price dynamics in daily data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 716-728, September.
- Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-79, September.
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