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Asymmetric price adjustments: A supply side approach

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  • Antoniou, Fabio
  • Fiocco, Raffaele
  • Guo, Dongyu

Abstract

Using a model of dynamic price competition, we provide an explanation from the supply side for the well-established observation that output prices react faster in response to input cost increases than to decreases. When costs decline, the opportunity of pro table storing in anticipation of higher future costs allows competitive fi rms to coordinate on prices above current marginal costs. The initial price response is only partial and pro table storing relaxes competition. Conversely, when costs rise, storing is not benefi cial in anticipation of lower future costs and fi rms immediately adjust their prices to current marginal costs, which entails the standard Bertrand outcome. Our results shed new light on the empirical evidence about asymmetric pricing and can stimulate further empirical investigation on this puzzle. Keywords: Asymmetric price adjustments, Bertrand-Edgeworth competition, Storage, Gasoline market. JEL Classifi cation: D4, L1.

Suggested Citation

  • Antoniou, Fabio & Fiocco, Raffaele & Guo, Dongyu, 2017. "Asymmetric price adjustments: A supply side approach," Working Papers 2072/306511, Universitat Rovira i Virgili, Department of Economics.
  • Handle: RePEc:urv:wpaper:2072/306511
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    Cited by:

    1. Levy, Daniel & Snir, Avichai & Gotler, Alex & Chen, Haipeng (Allan), 2020. "Not all price endings are created equal: Price points and asymmetric price rigidity," Journal of Monetary Economics, Elsevier, vol. 110(C), pages 33-49.
    2. Fabio Antoniou & Raffaele Fiocco, 2019. "Strategic inventories under limited commitment," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 695-729, September.
    3. Oladosu, Gbadebo, 2022. "Bubbles in US gasoline prices: Assessing the role of hurricanes and anti–price gouging laws," Journal of Commodity Markets, Elsevier, vol. 27(C).
    4. Palencia-González, Francisco J. & Navío-Marco, Julio & Juberías-Cáceres, Gema, 2020. "Analysis of brand influence in the rockets and feathers effect using disaggregated data," Research in International Business and Finance, Elsevier, vol. 52(C).
    5. Antoniou, Fabio & Fiocco, Raffaele & Guo, Dongyu, 2017. "Asymmetric price adjustments: A supply side approach," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 335-360.
    6. Fabio Antoniou & Raffaele Fiocco, 2023. "Storable Good Market With Intertemporal Cost Variations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 361-385, February.

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    More about this item

    Keywords

    Preus -- Fixació; 338 - Situació econòmica. Política econòmica. Gestió; control i planificació de l'economia. Producció. Serveis. Turisme. Preus;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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