Rockets and Feathers: Understanding Asymmetric Pricing

26 Pages Posted: 9 Apr 2007 Last revised: 16 Oct 2009

See all articles by Mariano E. Tappata

Mariano E. Tappata

University of British Columbia - Sauder School of Business, Strategy and Business Economics Division

Date Written: May 1, 2008

Abstract

Prices rise like rockets but fall like feathers. This stylized fact of most markets is confirmed by many empirical studies. In this paper, I develop a model with competitive firms and rational partially informed consumers where the asymmetric response to costs by firms emerges naturally. In contrast to public opinion and past work, collusion is not necessary to explain such a result.

Keywords: Asymmetric Pricing, Rockets and Feathers, Consumer Search, Cost Pass-through

JEL Classification: D21, D40, L13

Suggested Citation

Tappata, Mariano E., Rockets and Feathers: Understanding Asymmetric Pricing (May 1, 2008). RAND Journal of Economics, Vol. 40, No. 4, 2009. Available at SSRN: https://ssrn.com/abstract=978022

Mariano E. Tappata (Contact Author)

University of British Columbia - Sauder School of Business, Strategy and Business Economics Division ( email )

2053 Main Mall
Vancouver B.C., BC V6T-1Z2
Canada
1 (604) 822 8355 (Phone)

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