Asymmetric Price Adjustment in the Small

Bar-Ilan University Economics Working Paper

Emory University Economics Working Paper

41 Pages Posted: 11 Dec 2006

See all articles by Daniel Levy

Daniel Levy

Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis

Haipeng (Allan) Chen

University of Kentucky - Gatton College of Business and Economics

Sourav Ray

McMaster University - DeGroote School of Business

Mark E. Bergen

University of Minnesota - Carlson School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: November 2006

Abstract

Analyzing a large weekly retail transaction price dataset, we uncover a surprising regularity - small price increases occur more frequently than small price decreases for price changes of up to about 10 cents, while there is no such asymmetry for larger price changes. The asymmetry holds for the entire sample and for individual categories. We find that while inflation can explain some of the asymmetry, inflation is not the whole story as the asymmetry holds even after excluding inflationary periods from the data, and even for products whose price had not increased over the eight-year period. The findings hold for different measures of inflation and also after allowing for lagged price adjustments. We offer a consumer-based explanation for these findings.

Keywords: Asymmetric Price Adjustment, Price Rigidity, Rational Inattention, Small Price Changes

JEL Classification: E31, D11, D21, D80, L11, L16, M31

Suggested Citation

Levy, Daniel and Chen, Haipeng (Allan) and Ray, Sourav and Bergen, Mark E., Asymmetric Price Adjustment in the Small (November 2006). Bar-Ilan University Economics Working Paper, Emory University Economics Working Paper, Available at SSRN: https://ssrn.com/abstract=950549 or http://dx.doi.org/10.2139/ssrn.950549

Daniel Levy (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 5290002
Israel
+972 3 531-8345 (Phone)
+972 3 738-4034 (Fax)

HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )

1602 Fishburne Drive, Suite 306
Rich Building
Atlanta, GA 30322-0001
United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/Levydaniel.html

Rimini Center for Economic Analysis ( email )

Wilfrid Laurier University
75 University Ave W.
Waterloo, Ontario N2L3C5
Canada

HOME PAGE: http://rcea.org/

Haipeng (Allan) Chen

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States

Sourav Ray

McMaster University - DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
905-525-9140 x 22370 (Phone)
905-521-8995 (Fax)

Mark E. Bergen

University of Minnesota - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-624-1821 (Phone)

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