Product Revenue and Price Setting: Evidence and Aggregate Implications

71 Pages Posted: 21 Apr 2019

See all articles by DongIk Kang

DongIk Kang

Korea Institute of Public Finance

Andrew Usher

University of Michigan, College of Literature, Science and the Arts, Department of Economics, Students

Date Written: April 1, 2019

Abstract

Using retail scanner data, we find two previously unknown facts about price setting. First, the probability of price adjustment increases with product revenue. Second, the absolute size of price adjustment decreases with revenue. These facts are consistent with a model where the menu cost does not scale with revenue, and suggests that the price stickiness of individual products decrease with product revenue. Coupled with the movements in the cross-sectional revenue distribution across the business cycle, we find that the effect of monetary policy on output is 53.7% larger in recessions than in expansions using a calibrated menu cost model.

JEL Classification: E10, E30, E31, E32, E50, E52

Suggested Citation

Kang, DongIk and Usher, Andrew, Product Revenue and Price Setting: Evidence and Aggregate Implications (April 1, 2019). Available at SSRN: https://ssrn.com/abstract=3363889 or http://dx.doi.org/10.2139/ssrn.3363889

DongIk Kang

Korea Institute of Public Finance ( email )

79-6 Garak-Dong, Songpa-Ku
Seoul
United States

Andrew Usher (Contact Author)

University of Michigan, College of Literature, Science and the Arts, Department of Economics, Students ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

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