Magazine Prices Revisited
Federal Reserve Bank of Kansas City Working Paper No. 01-15
28 Pages Posted: 20 Mar 2002
Date Written: December 2001
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: Suggested Citation