Rockets and Feathers: Understanding Asymmetric Pricing
Mariano E. Tappata
University of British Columbia - Sauder School of Business, Strategy and Business Economics Division
May 1, 2008
RAND Journal of Economics, Vol. 40, No. 4, 2009
Prices rise like rockets but fall like feathers. This stylized fact of most markets is confirmed by many empirical studies. In this paper, I develop a model with competitive firms and rational partially informed consumers where the asymmetric response to costs by firms emerges naturally. In contrast to public opinion and past work, collusion is not necessary to explain such a result.
Number of Pages in PDF File: 26
Keywords: Asymmetric Pricing, Rockets and Feathers, Consumer Search, Cost Pass-through
JEL Classification: D21, D40, L13Accepted Paper Series
Date posted: April 9, 2007 ; Last revised: October 16, 2009
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