Price Response, Asymmetric Information, and Competition

Author(s)
Joshua Sherman, Avi Weiss
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.

Organisation(s)
Department of Economics
External organisation(s)
Bar-Ilan University (BIU)
Journal
The Economic Journal
Volume
125
Pages
2077 - 2115
ISSN
0013-0133
DOI
https://doi.org/10.1111/ecoj.12178
Publication date
2014
Peer reviewed
Yes
Austrian Fields of Science 2012
Industrial economics
Portal url
https://ucris.univie.ac.at/portal/en/publications/price-response-asymmetric-information-and-competition(1ff940d0-eee3-47f1-9760-6fc896e0c784).html