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 the 5 empirical facts relating to pricing behavior and selling quantity of a certain consumer goods based on daily scanner data to examine the relation between store properties and pricing behavior. These results denote that price stickiness varies by the retailers’ characteristics. We consider that the hidden mechanism of price stickiness comes from the retailer’s policy for inventory investment. A partial equilibrium model of the retailer’s optimization behavior with inventory is constructed so as to replicate the five empirical facts. The results of the numerical experiments in the constructed model suggest that price change frequency depends on the retailer’s order cost, storage cost, and menu cost, not on the price elasticity of demand.
|Date of creation:||Aug 2013|
|Contact details of provider:|| Postal: University of Tokyo 702 Faculty of Economics, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan|
Web page: http://www.e.u-tokyo.ac.jp/
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- Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-679, September.
- Oleksiy Kryvtsov & Virgiliu Midrigan, 2009.
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Staff Working Papers
09-6, Bank of Canada.
- 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," NBER Working Papers 14651, National Bureau of Economic Research, Inc.
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NBER Working Papers
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NBER Working Papers
9069, National Bureau of Economic Research, Inc.
- 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.
- Victor Aguirregabiria, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 275-308.
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