Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market

54 Pages Posted: 5 Jan 2017  

Sara Fisher Ellison

Massachusetts Institute of Technology (MIT) - Department of Economics

Christopher M. Snyder

Dartmouth College - Department of Economics

Hongkai Zhang

Massachusetts Institute of Technology (MIT) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 31, 2016

Abstract

We study price dynamics for computer components sold on a price-comparison website. Our fine-grained data — a year of hourly price data for scores of rival retailers — allow us to estimate a dynamic model of competition, backing out structural estimates of managerial frictions. The estimated frictions are substantial, concentrated in the act of monitoring market conditions rather than entering a new price. We use our model to simulate the counterfactual gains from automated price setting and other managerial changes. Coupled with supporting reduced-form statistical evidence, our analysis provides a window into the process of managerial price setting and the microfoundation of pricing inertia, issues of growing interest in industrial organization and macroeconomics.

Keywords: sticky prices; managerial costs; dynamic structural estimation; ecommerce

JEL Classification: L11, C73, D21, L81

Suggested Citation

Ellison, Sara Fisher and Snyder, Christopher M. and Zhang, Hongkai, Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market (October 31, 2016). MIT Department of Economics Working Paper No. 17-01. Available at SSRN: https://ssrn.com/abstract=2893754 or http://dx.doi.org/10.2139/ssrn.2893754

Sara Fisher Ellison (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-262C
Cambridge, MA 02142
United States
617-253-3821 (Phone)
617-253-1330 (Fax)

Christopher M. Snyder

Dartmouth College - Department of Economics ( email )

301 Rockefeller Hall
Hanover, NH 03755
United States
(603) 646-0642 (Phone)
(603) 646-2122 (Fax)

HOME PAGE: http://www.dartmouth.edu/~csnyder/

Hongkai Zhang

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

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