Rockets and Feathers: Understanding Asymmetric Pricing
26 Pages Posted: 9 Apr 2007 Last revised: 16 Oct 2009
Date Written: May 1, 2008
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: Suggested Citation