Magazine Prices Revisited

Federal Reserve Bank of Kansas City Working Paper No. 01-15

28 Pages Posted: 20 Mar 2002

Date Written: December 2001

Abstract

This paper examines price adjustment behavior in the magazine industry. In a frequently cited study, Cecchetti (1986) constructs a reduced-form (S,s) model for firms. Cecchetti assumes that a firm's pricing rules are fixed for non-overlapping three-year intervals and estimates the model using a conditional logit specification from Chamberlain (1980). The estimates are inconsistent, however, due to the state-dependent specification of the model. I illustrate the econometric problems in Cecchetti's results through a Monte Carlo exercise and then suggest a method for producing consistent estimates based upon Heckman and Singer (1984). The corrected results provide strong support for models of state-dependent pricing.

Keywords: Menu Costs, Price Adjustment, Nonparametric Methods

JEL Classification: C14, D40, L16

Suggested Citation

Willis, Jonathan, Magazine Prices Revisited (December 2001). Federal Reserve Bank of Kansas City Working Paper No. 01-15, Available at SSRN: https://ssrn.com/abstract=304179 or http://dx.doi.org/10.2139/ssrn.304179

Jonathan Willis (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States
816-881-2852 (Phone)
816-881-2199 (Fax)

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