exposed venture capital competitor ties and entrepreneurial innovation this study investigates the impact of early relationships on innovation at entrepreneurial firms prior research has largely focused on the benefits of network ties documenting the many advantages that accrue to firms embedded in a rich network of interorganizational relationships in contrast we build on research emphasizing potential drawbacks to examine how competitive exposure enabled by powerful intermediaries can inhibit innovation we develop the concept of competitive information leakage which occurs when firms are indirectly tied to their competitors via shared intermediary organizations to test our theory we examine every relationship between entrepreneurial firms and their venture capital investors in the minimally invasive surgical device segment of the medical device industry over a 22 year period we find that indirect ties to competitors impede innovation and that this effect is moderated by several factors related to the intermediary s opportunities and motivation to leak important information

price discrimination in broadway theater a common thread in the theory literature on price discrimination has been the ambiguous welfare effects for consumers and the rise in profit for firms relative to uniform pricing in this study i resolve the ambiguity for consumers and quantify the benefit for a firm i describe a model of price discrimination that includes both second degree and third degree price discrimination using data from a broadway play i estimate the structural model and conduct various experiments to investigate the implications of alternative pricing policies the observed price discrimination may improve the firm s profit by approximately 5 relative to uniform pricing while the difference for aggregate consumer welfare is negligible also i show that the gain from changing prices in the face of fluctuating demand is small under the observed price discrimination

not all price endings are created equal price points and asymmetric price rigidity abstract we document an asymmetry in the rigidity of 9 ending prices relative to non 9 ending prices consumers have difficulty noticing higher prices if they are 9 ending or noticing price increases if the new prices are 9 ending because 9 endings are used as a signal for low prices price setters respond strategically to the consumer heuristic by setting 9 ending prices more often after price increases than after price decreases 9 ending prices therefore remain 9 ending more often after price increases than after price decreases leading to asymmetric rigidity 9 ending prices are more rigid upward than downward these findings hold for both transaction prices and regular prices and for both inflation and no inflation periods

interest rate deregulation monetary policy efficacy and rate rigidity abstract this paper examines the effects of interest rate regulation and subsequent deregulation on the efficacy of monetary policy and rigidity of retail bank deposit rates in hong kong using an error correction model we find that interest rate deregulation increases the efficacy of monetary policy by improving the correlation between retail bank deposit rates and market interest rates and increasing the degree of long term pass through for retail bank deposit rates our study also shows that the adjustments in retail bank deposit rates are asymmetric and rigid upwards during the regulated period but tend to be rigid downwards during the deregulated period the spreads between retail bank deposit rates and market rates have also tightened sharply after the removal of interest rate controls

adapting prices or quantities in the presence of adjustment costs it is often hypothesized that costs of adjusting both price and quantities may have important implications for the macroeconomic adjustment process not least to nominal shocks we analyse this in an explicit intertemporal general equilibrium model considering the empirically relevant case of fixed costs of adjusting prices and fixed and variable costs of adjusting quantities we find that the presence of both price and quantity adjustment costs changes the response to shocks significantly it is an implication that small shocks do not support the menu cost case but rather both fixed prices and quantities rationing a numerical analysis based on available evidence on adjustment costs is used to illustrate the likelihood that the various adjustment patterns actually arise

state dependent pricing and the dynamics of money and output standard macroeconomic models of price stickiness assume that each firm leaves its price unchanged for a fixed amount of time we present an alternative model in which the pricing decision depends on the state of the economy we find a method of aggregating individual price changes that allows a simple characterization of macroeconomic variables the model produces a positive money output correlation and an empirical phillips curve in addition the impact of monetary shocks depends crucially on the current level of output which points to a natural connection between state dependent microeconomics and state dependent macroeconomics i introduction there is a long tradition in macroeconomics of attributing the real effects of nominal demand shocks to nominal price stickiness in this view if there is no change in prices when nominal demand rises then quantities must bear the burden of adjustment hence nominal price rigidity provides the friction needed for nominal demand shocks to be transmitted to the real economy standard models of this transmission mechanism such as fischer 1977 and taylor 1980 are based on the assumption that each firm leaves its price unchanged for a fixed amount of time the main reason for considering such time dependent pricing rules is their analytic tractability constraining firms to adjust their prices at prespecified times both simplifies the derivation of equilibrium strategies and allows the use of powerful time series techniques to analyze aggregate dynamics the main disadvantage of the timedependent approach is that between price adjustments firms are not allowed to respond even to extreme changes of circumstance this makes it difficult to know whether the qualitative effects of money in these models are the result of nominal rigidities per se or of the exogenously imposed pattern of price changes an alternative approach to modeling price stickiness is to allow the price setting decision to depend on the actual state of the

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

inflation costly price and quantity adjustments and time spent in the keynesian regime abstract this paper considers a menu cost firm under inflation due to costly quantity adjustments the firm is sometimes in a keynesian regime where sales are demand determined with a positive real interest rate the proportion of time in the keynesian regime is less than the inverse of the absolute value of the average elasticity of demand in that regime

the timing and magnitude of retail store markdowns evidence from weekends and holidays we examine daily prices of eight goods at seventeen retail stores collected in ann arbor michigan over a four month period from november 1 to february 28 we focus on weekly and seasonal price patterns and on the frequency of price markdowns or sales there were frequent markdowns in the intensive shopping period prior to christmas and a tendency for such sales to occur on weekends we interpret these findings as evidence that a significant number of markdowns are timed to occur when shopping intensity is exogenously high we complement the imperfect information based motives for sales in the literature by contributing an additional element based on the role of bulk shopping and increasing returns in the shopping technology

round prices and price rigidity evidence from outlawing odd prices abstract this paper exploits a legal change in israel that banned the use of non zero digit price endings e g 6 99 to study the relationship between digit price endings and price rigidity we compare the propensity of product prices to change before and after the ban while distinguishing between products whose prices ended with a zero and products whose prices did not end with a zero digit before the ban we find that before the ban zero digit price endings were more likely to change typically upward compared with products with non zero digit price endings after the legal change these differences disappeared overall these findings support the price point theory blinder 1991

do the new keynesian microfoundations rationalise stabilisation policy systematic monetary policy is analysed in a two period extension of standard static new keynesian models it is shown that countercyclical policies increase the band of inaction of the price setters and that this feedback effect on price rigidity may make such policies self justifying that is the policies themselves cause the fluctuations that they are stabilising moreover countercyclical policies may in general reduce welfare in fact socially optimal policies may very well involve a commitment to enhance shocks

informational rigidities and the stickiness of temporary sales abstract how do retailers react to cost changes while temporary sales account for 95 of price change in our data retail prices respond to a wholesale cost increase entirely through the regular price sales actually respond temporarily in the opposite direction from regular prices as though to conceal the price hike additional evidence from responses to commodity cost and local unemployment shocks as well as broader evidence from bls data reinforces these findings institutional evidence indicates that sales are complex contingent contracts determined substantially in advance in a standard price discrimination model these institutional practices leave little money on the table

elusive persistence wage and price rigidities the new keynesian phillips curve and inflation dynamics abstract we review the main new keynesian inflation equations that have arisen as a result of aggregation from individual firms price rigidities we find that on the whole they cannot account for inflation persistence a key feature of the empirical dynamics of inflation and with important policy implications the only exceptions seem to be when indexation is allowed in price setting or when price stickiness is combined with wage rigidity and staggering

purchasing power parity and unit root tests using panel data abstract this paper reports the results of unit root tests for real exchange rates using a panel framework this panel approach provides greatly improved power compared to conventional univariate time series unit root tests we obtain evidence supporting ppp over the recent flexible exchange rate period for g 6 and oecd countries we show explicitly that failure to find such evidence in previous research was due to the low power of the tests

convenient prices currency and nominal rigidity theory with evidence from newspaper prices abstract certain items prices are often set to simplify and expedite transactions by coinciding with available monetary units requiring few pieces of money or requiring little change in this sense these prices are more convenient than other proximate prices this paper models a firm that explicitly incorporates convenience into its pricing decisions where convenience is quantified by the number of currency units in a transaction and illustrates the theoretical behaviors that can arise newspaper cover price data empirically support the theory across a broader range of goods and services convenience appears to play a role in effecting above average nominal price rigidity

market structure and the nature of price rigidity evidence from the market for consumer deposits panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates but are faster to reduce them in response to declining market interest rates thus banks with market power skim off surplus on movements in both directions since deposit interest rates are inversely related to the price charged by banks for deposits the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration

inflation price competition and consumer search technology abstract this paper studies an s s pricing model in the presence of inflation and price competition in search markets i present a model in which consumers search technologies can influence firms price setting price dispersion and the market structure the result obtained shows that although price competition among firms is intensified in markets where consumers search technologies are more efficient price inflation is counter intuitively more likely to increase the monopoly power and stimulate entry of firms in these markets the model also provides new empirical implications for firms price setting behaviors

on the predictive power of monetary exchange rate model the case of the malaysian ringgit us dollar rate the predictive power of the monetary model for the malaysian ringgit us dollar rm usd rate is analysed using quarterly data ending in 2006 q3 we find compelling evidence of a long run relationship between exchange rates and the economic fundamental determinant macroeconomic factors systematically affect the long run movement of the rm usd rate additionally the rm usd rate was overvalued by about 10 several quarters before the 1997 crisis after the crisis rates fluctuated close to the equilibrium value the out of sample forecasts demonstrate that the monetary model outperforms the naive random walk model the monetary and purchasing power parity ppp models do well at the four to eight quarters horizon

cointegration tests of the monetary exchange rate model for three high inflation economies tests of cointegration are applied to the monetary model of the exchange rate to determine if the model represents a long run equilibrium relation for three high inflation countries the countries tested are argentina chile and israel each paired with the united states as the base country evidence favorable to cointegration among the variables of the monetary model is found using johansen s maximum likelihood procedure copyright 1994 by ohio state university press

agency in action entrepreneurs networking style and initiation of economic exchange this multimethod study investigates the effects of entrepreneurs interpersonal networking style on the initiation of interorganizational exchange ties i use inductive theorizing to make a distinction between interpersonal networking actions aimed at adding new contacts network broadening actions versus managing existing contacts network deepening actions i reason that because networking actions alter the cost benefit calculus of using referrals the extent to which entrepreneurs rely on referrals when searching for new exchange partners should vary with their networking actions i then propose that entrepreneurs are likely to add fewer new exchange partners when they rely more on referrals to search the empirical analysis employs a longitudinal design using data coded from the business cards of new contacts formed over a two month period by a panel of indian entrepreneurs operating business to business ventures this study makes a theoretical contribution by identifying decision makers networking style as a distinct mechanism shaping partner selection for their organization specifically the study shows entrepreneurs using more network deepening actions initiate fewer new economic exchanges due in part to their increased reliance on referral based search whereas entrepreneurs using more network broadening actions initiate more new economic exchanges due in part to their decreased reliance on referral based search

menu costs and phillips curves this paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation sellers can change price only by incurring a real menu cost we calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new u s data set of individual prices due to klenow and kryvtsov the prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with international evidence from various studies the model is also used to conduct numerical experiments on the economy s response to various shocks in none of the simulations we conducted did monetary shocks induce large or persistent real responses

preentry contacts and the generation of nascent networks in organizations this paper investigates the impact of individuals social ties at organizational entry on the formation of intraorganizational networks when individuals enter organizations with one or more preentry relationships in place i argue they form more extensive networks post entry than their untied counterparts however it is also suggested that under some conditions i e when quality is more certain the relationship between pre and postentry social structure is contingent on individuals quality attributes i test and find support for these hypotheses in a study of new business and law professionals the results indicate that individuals with an initial advantage in social ties form more extensive networks post entry than those without such an advantage and that when certainty about quality is high this effect depends on the quality attributes of the new entrants implications of this study for research on social networks resource accumulation and inequality are discussed

price setting with menu cost for multi product firms we model the decisions of a multiproduct firm that faces a fixed menu cost once it is paid the firm can adjust the price of all its products we characterize analytically the steady state firm s decisions in terms of the structural parameters the variability of the flexible prices the curvature of the profit function the size of the menu cost and the number of products sold we provide expressions for the steady state frequency of adjustment the hazard rate of price adjustments and the size distribution of price changes all in terms of the structural parameters we study analytically the impulse response of aggregate prices and output to a monetary shock the size of the output response and its duration both increase with the number of products they more than double as the number of products goes from 1 to 10 quickly converging to the response of taylor s staggered price model

prices rise faster than they fall output prices tend to respond faster to input increases than to decreases this tendency is found in more than two of every three markets examined it is found as frequently in producer goods markets as in consumer goods markets in both kinds of markets the asymmetric response to cost shocks is substantial and durable on average the immediate response to a positive cost shock is at least twice the response to a negative shock and that difference is sustained for at least five to eight months unlike past studies which documented similar asymmetries in selected markets gasoline agricultural products etc this one uses large samples of diverse products 77 consumer and 165 producer goods accordingly the results suggest a gap in an essential part of economic theory as a start on filling this gap the study finds no asymmetry in the resonse of an individual decision maker a supermarket chain to its costs but it finds above average asymmetry where a cost shock is filtered through a fragmented w

own brand and cross brand retail pass through in this paper we describe the pass through behavior of a major u s supermarket chain for 78 products across 11 categories our data set includes retail prices and wholesale prices for stores in 15 retail price zones for a one year period for the empirical model we use a reduced form approach that focuses directly on equilibrium prices as a function of exogenous supply and demand shifting variables the reduced form approach enables us to identify the theoretical pass through rate without specific assumptions about the form of consumer demand or the conduct of a category pricing manager thus our measurements of pass through are not constrained by specific structure on the underlying economic model the empirical pricing model includes costs of all competing products in the category on the right hand side not only the cost of the focal brand and yields estimates of both own brand and cross brand pass through rates our results provide a rich picture of the retailer s pass through behavior we find that pass through varies substantially across products and across categories own brand pass through rates are on average more than 60 for 9 of 11 categories a finding that is at odds with the claims of manufacturers about retailers in general importantly we find substantial evidence of cross brand pass through effects indicating that retail prices of competing products are adjusted in response to a change in the wholesale price of any given product in the category we find that cross brand pass through rates are both positive and negative we explore determinants of own brand and cross brand pass through rates and find strong evidence in multiple categories of asymmetric retailer response to trade promotions on large versus small brands for example brands with larger market shares and brands that contribute more to retailer profits in the category receive higher pass through we also find that trade promotions on large brands are less likely than small brands to generate positive cross brand pass through i e induce the retailer to reduce the retail price of competing smaller products on the other hand small share brands are disadvantaged along three dimensions trade promotions on small brands receive low own brand pass through and generate positive cross brand pass through for larger competing brands moreover small share brands do not receive positive cross pass through from trade promotions on these larger competitors we also find that store brands are similarly disadvantaged with respect to national brands

price discovery in illiquid markets do financial asset prices rise faster than they fall we study price discovery in municipal bonds an important otc market as in markets for consumer goods prices rise faster than they fall round trip profits to dealers on retail trades increase in rising markets but do not decrease in falling markets further effective half spreads increase or decrease more when movements in fundamentals favor dealers yield spreads relative to treasuries also adjust with asymmetric speed in rising and falling markets finally intraday price dispersion is asymmetric in rising and falling markets as consumer search theory would predict in a wide variety of consumer markets prices for retail goods rise faster than they fall 1 this asymmetric price adjustment referred to as rockets and feathers is generally understood by economists to be inconsistent with perfect competition between sellers sellers appear to exploit local market power due to the search frictions that their customers face we document asymmetric price adjustment in a major over the counter otc financial market using a comprehensive sample of all trades in municipal bonds over a 5 year period we provide evidence that the asymmetric price adjustment is associated with opportunistic timing by the broker dealers who intermediate trades in the market movements in fundamentals that increase spreads earned by broker dealers are reflected quickly in prices while prices respond more slowly to changes that reduce their spreads further the asymmetries are more pronounced in states where tax treatment of the bonds would induce market segmentation we also document asymmetries in withinday price dispersion as implied by theoretical models of rockets and feathers price adjustments based on costly consumer search and learning

inflation and output dynamics with state dependent pricing decisions this paper studies a state dependent pricing model in which firms face a fixed cost of changing their pricing plans a pricing plan specifies an entire sequence of time varying future prices allowing firms to choose a pricing plan rather than a single price generates inflation inertia in the response of the economy to small changes in the growth rate of money allowing firms to choose when to change their pricing plan generates a non linear response of inflation and output to small and large changes in the money growth rate the non linear solution method also reveals that the model generates an asymmetric response of output and inflation to monetary expansions and contractions

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

the monetary model of the exchange rate under hyperinflation new encouraging evidence abstract this paper suggests a new method of testing the rational expectations version of the monetary model of the exchange rate under hyperinflation that takes into account the stochastic non stationarity of the data involved the method is applied to money and exchange rate data from the german 1921 1923 hyperinflation and the results are very supportive of the model

fractional cointegration low frequency dynamics and long run purchasing power parity an analysis of the australian dollar over its recent float a relatively new but generalized concept of fractional cointegration is applied to shed some light on the validity of purchasing power parity ppp as a long run equilibrium condition by examining the long run relationship between quarterly consumer price indices and bilateral exchange rates of the australian dollar and seven major oecd trading partners over australia s recent float the paper demonstrates that relaxing the condition that the residual from the cointegration equation must be a i 0 process provides a wide range of cases of parity reversion with processes that are ci 1 d with 0 d 1 findings tend to suggest that while standard tests of cointegration fail to support cointegration between nominal exchange rates domestic and foreign prices and thus the empirical favour for ppp as a long run phenomenon the fractional cointegration analysis permits deviations from equilibrium to follow a fractionally integrated process and hence captures a much wider class of parity or mean reversion

menu costs firm strategy and price rigidity abstract after controlling for chain specific effects higher menu costs are associated with a slight decrease in the probability of a price change and an increase in the size of a price change firm strategy is more influential in determining the incidence and magnitude of a price change

on error correction models specification interpretation estimation abstract error correction models ecms have proved a popular organising principle in applied econometrics despite the lack of consensus as to exactly what constitutes their defining characteristic and the rather limited role that has been given to economic theory by their proponents this paper uses a historical survey of the evolution of ecms to explain the alternative specifications and interpretations and proceeds to examine their implications for estimation the various approaches are illustrated for wage equations by application to uk labour market data 1855 1987 we demonstrate that error correction models impose strong and testable non linear restrictions on dynamic econometric equations and that they do not obviate the need for modelling the process of expectations formation with the exception of a few special cases both the non linear restrictions and the modelling of expectations have been ignored by those who have treated ecms as merely reparameterisations of dynamic linear regression models or vector autoregressions

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

price stickiness empirical evidence of the menu cost channel abstract a leading explanation in the economic literature is that monetary policy has real effects on the economy because firms incur a cost when changing prices using a unique database of cost and retail price changes we find that variation in menu costs results in up to 13 3 fewer price increases we confirm that these effects are allocative and have a persistent impact on both prices and unit sales we provide evidence that the menu cost channel operates only when cost increases are small in magnitude which is consistent with theory and provides the first empirical evidence of boundary conditions

menu costs posted prices and multiproduct retailers we use a unique store level data set to directly measure menu costs and to study the price change process at a large u s drugstore chain we compare and contrast the magnitude of these measures with similar measures from four large u s supermarket chains we find that 1 the actual magnitude of menu costs as a share of revenues 2 menu costs per price change 3 the frequent use of promotional pricing and 4 the use of weekly pricing rules are similar across both retail formats given that the main common features of these two types of retail formats are that i they both use posted prices and ii both are multiproduct retailers selling a large number of products our findings suggest that the magnitude of the menu cost components we measure and the price change practices we document may be generalizable across retail formats with these two features

tests of different monetary aggregates for the monetary models of the exchange rate in five asean countries this study examines the usefulness of divisia money relative to simple sum money for exchange rate modelling in a period of rapid financial deregulation this comparison is conducted using the monetary model of the exchange rate in the long run modelling the divisia money is significantly superior to simple sum money in the case of malaysia and the philippines while indifferent for indonesia singapore and thailand

forecasting the exchange rate ppp versus a random walk abstract forecasts of error correction models based on ppp are compared to a random walk the results are mixed however for two out of four currencies imposing ppp on the error correction term generates a specification that outperforms a random walk

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

cointegration how short is the long run abstract when testing for cointegration and faced with short sample periods it is common for researchers to turn to more frequently sampled observations that is to move from annual to quarterly or monthly data in order to increase the number of observations we argue that such a gain in the degrees of freedom is more apparent than real essentially cointegration is a long run concept and hence requires long spans of data to give tests for cointegration much power rather than merely large numbers of observations using monte carlo simulations we demonstrate this for four popular tests for cointegration

embracing digital networks entrepreneurs social capital online abstract this paper presents a research agenda for understanding how entrepreneurs accrue social capital in the digital age we develop a conceptual framework with 12 research propositions that specify how the unique technical capabilities of social network sites impact entrepreneurs bridging and bonding social capital online these propositions are informed by anecdotal evidence from founders that finds entrepreneurs social capital accrual differs online we include theoretical and methodological insights for overcoming research challenges concerning context dynamism intertwined networks and unclear behavioral norms this agenda addresses a growing gap between contemporary entrepreneurial practices and existing social capital theory and research in entrepreneurship

sticky prices new evidence from retail catalogs this paper presents new results on the size frequency and synchronization of price changes for twelve selected retail goods over the past 35 years three basic facts about the data are uncovered first nominal prices are typically fixed for more than one year although the time between changes is very irregular second prices change more often during periods of high overall inflation third when prices do change the sizes of the changes are widely dispersed both large and small changes occur for the same item and the sizes of these changes do not closely depend on overall inflation

purchasing power parity and the canadian float in the 1950s in this paper the authors present evidence that neither large differences in inflation nor long time periods are necessary for a finding favorable to purchasing power parity evidence from cointegrating regressions and tests of the real exchange rate indicate that purchasing power parity held as a long run constraint between the united states and canada for the period 1950 10 to 1961 5 the authors also find that government intervention can distort purchasing power parity over a finite period once the data were extended beyond the period of the free float the evidence is no longer favorable to purchasing power parity copyright 1991 by mit press

a tale of two rigidities sticky prices in a sticky information environment macroeconomic models with microeconomic foundations allow for comparisons with macro and micro empirical evidence this paper proposes a model wherein firms i acquire information infrequently generating sticky information mankiw and reis 2002 and ii face menu costs producing state dependent sticky prices i estimate parameters via indirect inference and show that under considerable real rigidity sticky prices in a sticky information environment are consistent with micro and macro evidence sticky prices not only help match micro data on price changes size and durations between adjustments they also improve the model s fit with the macro data as embodied in an empirical phillips curve

the real thing nominal price rigidity of the nickel coke 1886 1959 we report that the price of a 6 5 oz coca cola was 5c from 1886 until 1959 thus we are documenting a nominal price rigidity that lasted more than 70 years the case of coca cola is particularly interesting because during the 70 year period there were substantial changes in the soft drink industry as well as two world wars the great depression and numerous regulatory interventions and lawsuits which led to substantial changes in the coca cola market conditions the nickel price of coke nevertheless remained unchanged we find that this unusual rigidity is best explained by 1 a contract between the company and its parent bottlers that encouraged retail price maintenance 2 a single coin vending machine technology which limited the company s price adjustment options due to limited availability and unreliability of the existing flexible price adjustment technologies and 3 a single coin monetary transaction technology which limited the company s price adjustment options due to the customer inconvenience cost we show that these price adjustment costs are of a different nature than the standard menu cost and their estimates exceed the existing estimates by an order of magnitude a possible broader relevance of the nickel coke phenomenon is discussed in the context of nickel and dime stores which were popular in the us in the late 1800s and the early 1900s

staggering and synchronization in price setting evidence from multiproduct firms theoretical work on price setting behavior focuses on the single product case while in reality a single price setter sells many products the authors use retail store level multiproduct pricing data to learn about price dynamics they find that while the timing of a product s price changes is staggered across stores selling the same product the timing of the price changes of different products sold within the same store is highly synchronized this finding validates the usual assumption that decisions are staggered across price setters and suggests that price rigidity is due mostly to mechanical reasons and not to informational asymmetries copyright 1996 by american economic association

nominal rigidities without literal menu costs evidence from e commerce abstract using price data from online book retailers amazon com and barnes and noble com we show that nominal rigidities persist in an environment that is free from literal menu costs menu costs therefore are not the prime reason for nominal rigidities

inflation fixed cost of price adjustment and measurement of relative price variability theory and evidence in an interesting paper julio rotemberg 1983 extends the works of eitan sheshinski and yoram weiss 1977 and michael mussa 1981 to examine the aggregate consequences of monetary growth in an economy in which sellers incur a fixed cost of price adjustment the fixed cost prevents a continual adjustment of individual prices so each seller keeps his price constant in periods of discrete length increasing his price in discrete jumps at the end of these periods a central feature of the inflationary process is therefore that relative prices become dispersed around their means and the theory predicts that even a fully anticipated inflation increases the variability of relative prices the empirical evidence on this point does however appear to be mixed on the one hand richard parks 1978 and stanley fischer 1981a b 1982 conclude that anticipated inflation does increase relative price variability which fischer interprets as providing empirical support for the theory on the other hand mario blejer 1981 1983 and blejer and leonardo leiderman 1982 find that anticipated inflation has no effect or only a very weak effect on relative price variability which makes john taylor 1981 doubt the quantitative significance of the theory 2 this paper uses rotemberg s theoretical framework to demonstrate that the proxy for relative price variability adopted in the empirical literature does not properly capture the relative price variability that is caused by a fixed cost of price adjustment the methodology of the above cited studies is therefore not appropriate for evaluating the empirical relevance of the fixed cost theory and the divergence of their results is not surprising specifically the proxy which consists of the variance of the rates of price change between successive observations does not always increase with the anticipated inflation even with disaggregate data 3 the proxy decreases with the anticipated inflation in approximately half of any interval of inflation rates for which a seller adjusts his price no more than a given number of times between successive observations moreover the relationship between the anticipated inflation and the proxy depends on such extraneous factors as the timing of the observations a change in the timing may change a positive relationship between the anticipated inflation and the proxy to a negative one and vice versa the paper also proposes alternative more satisfactory measures of relative price variability and provides empirical support for the theoretical conclusions

state dependent or time dependent pricing does it matter for recent u s inflation in the 1988 2004 micro data collected by the u s bureau of labor statistics for the cpi price changes are frequent every 4 7 months depending on the treatment of sale prices and large in absolute value on the order of 10 the size and timing of price changes varies considerably for a given item but the size and probability of a price change are unrelated to the time since the last price change movements in aggregate inflation reflect movements in the size of price changes rather than the fraction of items changing price due to offsetting movements in the fraction of price increases and decreases neither leading time dependent models taylor or calvo nor 1 st generation state dependent models match all of these facts some 2 nd generation state dependent models however appear broadly consistent with the empirical patterns

the magnitude of menu costs direct evidence from large u s supermarket chains we use store level data to document the exact process of changing prices and to directly measure menu costs at five multistore supermarket chains we show that changing prices in these establishments is a complex process requiring dozens of steps and a nontrivial amount of resources the menu costs average 105 887 year per store comprising 0 70 percent of revenues 35 2 percent of net margins and 0 52 price change these menu costs may be forming a barrier to price changes specifically 1 a supermarket chain facing higher menu costs due to item pricing laws that require a separate price tag on each item changes prices two and one half times less frequently than the other four chains 2 within this chain the prices of products exempt from the law are changed over three times more frequently than the products subject to the law in principle fixed costs of changing prices can be observed and measured in practice such costs take disparate forms in different firms and we have no data on their magnitude so the theory can be tested at best indirectly at worst not at all alan blinder 1991 p 90

coarse pricing policies the muted volatility of inflation during the great recession and its aftermath has refocused attention on the constraints that firms face when adjusting prices using new empirical and theoretical results i argue that each firm s choice of how much information to acquire to set prices plays a central role in determining the patterns of pricing at the product level and the degree of aggregate price rigidity in response to shocks in support of the information channel i present product level evidence that firms price goods using coarse pricing policies that are updated infrequently and consist of a small menu of prices firms are heterogeneous in the complexity and duration of their pricing policies and this heterogeneity is reflected in differential responses to the great recession cycle with firms exhibiting more complex policies responding more aggressively i develop a theory of information constrained price setting that generates coarse pricing endogenously and quantitatively matches the discreteness duration and volatility of policies in the data the information friction dampens the responsiveness of prices to shocks and coupled with heightened volatility induces firms to keep prices relatively high to protect against losses in an uncertain environment

a dynamic economy with costly price adjustments this paper studies a general equilibrium model of a dynamic economy with menu costs each firm s productivity is exposed to idiosyncratic and aggregate productivity shocks around a trend and the money supply to monetary shocks around a trend all consumption pricing and production decisions are based on optimizing behavior there exists a staggered markov perfect equilibrium with prices determined by a two sided s s markup strategy the paper analyzes the optimal markup strategy and investigates the dynamics of the price index and the aggregate output the welfare consequences of the uncertain aggregate productivity and money supply are also examined

international price dispersion in state dependent pricing models menu cost models predict a hump shaped relationship between real and nominal exchange rate volatility the hump occurs at higher values of nominal exchange rate volatility the higher trade costs and lower international substitution elasticities are these predictions accord well with the negative relationship between relative price and nominal exchange rate volatility i document using a data set of prices collected in eastern europe in a volatile environment in contrast trade costs must be sufficiently high or international substitution elasticities low in order for the model to account for the positive correlation between real and nominal exchange rate volatility in the aggregate data

testing the long run structural validity of the monetary exchange rate model using a recently developed econometric technique we test the validity of the over identifying restrictions of the long run structural relations underlying the flex price monetary model of the exchange rate our main finding is that for the canadian us dollar structural identification is rejected by the data

economies of scope in price setting a moment inequalities estimation abstract using weekly data on prices costs and units sold by a supermarket chain a moment inequalities approach is used to estimate a discrete choice dynamic model of a multiproduct firm facing menu costs this empirical methodology allows to estimate two types of fixed costs of price adjustment costs that are independent of the number of items that change prices and costs that are incurred at each item s price change i find that both types of menu costs exist and are substantial the total cost of changing prices is estimated to be bounded between 0 3 and 1 3 of revenues and between 17 and 65 of net margins the first type of fixed cost accounts for between 23 and 99 of this expense pointing to substantial economies of scope in price setting

when little things mean a lot on the inefficiency of item pricing laws abstract item pricing laws ipls require a price tag on every item sold by a retailer we study ipls and assess their efficiency by quantifying their costs and comparing them to previously documented benefits on the cost side we posit that ipls should lead to higher prices because they increase the costs of pricing and price adjustment we test this prediction using data collected from large supermarket chains in the tri state area of new york new jersey and connecticut we find that ipl store prices are higher by about 20 25 per item on average as a control we use data from stores that use electronic shelf labels and find that their prices fall between ipl and no ipl store prices we compare the costs of ipls to existing measures of the benefits and find that the costs are an order of magnitude higher than the upper bound of the estimated benefits

when is price discrimination profitable we consider a general model of monopoly price discrimination and characterize the conditions under which price discrimination is and is not profitable we show that an important condition for profitable price discrimination is that the percentage change in surplus i e consumers total willingness to pay less the firm s costs associated with a product upgrade is increasing in consumers willingness to pay we refer to this as an increasing percentage differences condition and relate it to many known results in the marketing economics and operations management literatures

do retail gasoline prices respond asymmetrically to cost shocks the influence of edgeworth cycles asymmetric price cycles similar to edgeworth cycles are appearing in increasingly many retail gasoline markets in the united states and worldwide the asymmetry in the cycles can give rise to a finding of asymmetric price responses to cost shocks asymmetric passthrough this article estimates asymmetric passthrough for the market of toronto which exhibits cycles and decomposes it into two components that part explainable by the cycles and that part driven by other unknown sources significant asymmetric passthrough is found with increases passed through more quickly than decreases a significant cause of the finding is the presence of the cycles themselves

aggregation and optimization with state dependent pricing the literature on the aggregation of s s policies has ignored the impact of aggregate behavior on the individual s optimization problem in the case of pricing the feedback effects are clear not only do pricing strategies determine the evolution of the price level but the evolution of the price level also influences the optimal pricing strategies in this paper we provide a consistent treatment of aggregation and optimization we use this model to analyze three issues in the menu cost pricing literature the relationship between strategic complementarity and the real effects of money the relationship between the variance of the money supply and the correlation between money and output and the relationship between the cost of price adjustment and the size of price adjustment questions concerning the dynamics of aggregate variables such as prices employment investment and consumption represent the core of business cycle analysis one striking feature of these variables is the radical difference between properties of these aggregates and the nature of the individual behavior that underlies them the behavior of a firm s prices investment and employment and the behavior of an individual s consumption all involve frictional elements that lead to discrete adjustment at the microeconomic level heterogeneity among individuals however tends to smooth the behavior of the corresponding aggregates in recent years a large body of research has developed to examine the manner in which microeconomic frictions influence aggregate dynamics one of the centerpieces of this research has been the s s model developed by arrow harris and marschak 1951 the key element of this model is the state dependence of individual decisions agents act when a state variable crosses some critical threshold which balances the cost and benefits of adjustment the aggregate implications of this form of microeconomic behavior have been analyzed by blinder 1981 caplin 1985 and mosser 1991 in the context of inventory dynamics by caplin and spulber 1987 caballero and engel 1991 1993 and caplin and leahy 1991 in the context of prices and by bertola and caballero 1990 caballero 1993 and eberly 1994 in the context of con sumer durables one of the most limiting aspects of these models is that they focus exclusively on the impact that microeconomic inertia has on aggregate dynamics they 1we would like to thank michael harrison loannis karatzas john leahy sr andreu mas colell a co editor and four anonymous referees for helpful discussions and comments and the national science foundation and the sloan foundation for financial support

money demand during hyperinflation and stabilization bulgaria 1991 2000 the demand for money in bulgaria is estimated over a ten year period 1991 2000 of high inflation and inflation uncertainty the paper distinguishes between three well defined sub periods high variable but not systematically accelerating inflation from 1991 until april 1996 the near hyperinflation period from may 1996 to february 1997 and the subsequent stabilization after the adoption of a currency board the empirical analysis utilizes a standard methodology of cointegration and error correction the functional determinants of the demand for money change during the different sub periods during the hyperinflation episode cagan s model is employed

hostile environmental jolts transaction set and new business abstract in this exploratory study we examine empirically the effects of environmental jolts on the evolution of the set of relationships that entrepreneurs have with their customers and suppliers which we call the transaction set we believe that understanding how turbulence in the environment affects the ability of entrepreneurs to hold on to their existing relationships or to add new relationships is fundamental to understanding the evolution and growth of an organization from a start up to a stable wealth creating enterprise in the long run using longitudinal data spanning 7 to 10 years from five start up firms we investigate three questions on the connection between environmental jolts and changes in the transaction set of the firm first do environmental jolts during the early life of the firm induce significant reductions in the set of relationships of a new small firm second are entrepreneurs able to add new relationships in greater numbers than the exit of old relationships following a jolt and third do start ups enjoy a honeymoon period when environmental jolts do not induce significant reductions in the set of relationships after a jolt our study yielded several findings that may be of interest to entrepreneurs academics and incubator managers first environmental jolts have a significant impact on the exits of relationships from the transaction set of a new small firm but not necessarily on the entry of new relationships into the set thus although liabilities of newness and small size seem to affect the ability of entrepreneurs to hold on to their existing relationships during environmental jolts these jolts do not seem to affect the entrepreneur s ability to add ties at least in the very early life of the firm second the level of reduction after environmental jolts seems to be less severe during the early life and greatest during the adolescent period further entries of new relationships decrease with each succeeding jolt one implication of our findings is that environmental selection pressures are more severe after an incubation period called the honeymoon period a second implication of our findings is the way in which liability of adolescence manifests itself the honeymoon does not provide incubation against exits of relationships rather the incubation manifests itself in the form of the willingness of new customers and suppliers to join the entrepreneur s transaction set even during a jolt however this goodwill shown by new customers and suppliers decreases with each succeeding jolt thus making the firm very vulnerable to failure during its adolescent phase of life we believe our study emphasizes the role that chance plays in the early survival and growth of firms firms lucky to avoid hostile jolts after their honeymoon period will be in a better position to grow rapidly other things being equal despite sound management and superior exercise of enterprise jolts appear in the life of firms in a stochastic often unpredictable fashion although it is not clear that firms who have superior enterprise ability or slack are more likely to succeed than those who don t what is clear is that the ability to survive and grow is seriously affected with each succeeding jolt whatever the ability if our findings and our inference from the findings are general they have an important public policy implication for new small companies conventional wisdom holds that given liabilities of newness and small size incubator environments are best provided to start up firms we would recommend a different strategy incubator environments are best provided not at the start up stage to new business but at the adolescent stage incubators should be provided to companies that show during the honeymoon phase that their ideas and products have merit and that they can attract customers and investors to their venture it is during the adolescent stage that firms are most vulnerable to environmental disturbances and where ability may not be a sufficiently good discriminator between survival and failure

decision stages and asymmetries in regular retail price pass through we study the pass through of wholesale price changes onto regular retail prices using an unusually detailed data set obtained from a major retailer we model pass through as a two stage decision process that reflects both whether as well as how much to change the regular retail price we show that pass through is strongly asymmetric with respect to wholesale price increases versus decreases wholesale price increases are passed through to regular retail prices 70 of the time while wholesale price decreases are passed through only 9 of the time pass through is also asymmetric with respect to the magnitude of the wholesale price change with the magnitude affecting the response to wholesale price increases but not decreases finally we show that covariates such as private label versus national brand 99 cent price endings and the time since the last wholesale price change have a much stronger impact on the first stage of the decision process i e whether to change the regular retail price than on th

end of 9 endings price recall and price perceptions prices that end with 9 also known as psychological price points are common comprising about 70 of the retail prices they are also more rigid than other prices we take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9 endings in january 2014 the israeli government passed a new regulation prohibiting the use of non 0 ending prices bringing an end to 9 ending prices we find that seven months after 9 ending prices have disappeared 90 ending prices acquired the same status as 9 ending prices had before the new regulation was adopted thus 90 ending prices became the new psychological price points partially eliminating the regulation s intended effect

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

long and short run fisher effects new tests and new results we find fisher effects both long and short run in our full sample period and in the lengthy first sub period using mishkin s monthly data for treasury bill yields and the corresponding inflation rate recently developed cointegration techniques ahn and reinsel 1990 reinsel and ahn 1992 are used to detect a long run fisher effect the short run effect is analysed within a cointegration framework using a granger causality test that we developed in the two more recent but comparatively short sub periods since october 1979 our results indicate the fisher effect is not present in either long or short run form these methodologies and results differ from the conclusions of mishkin s 1992 recent study

a structural approach to identifying the sources of local currency price stability the inertia of the local currency prices of traded goods in the face of exchange rate changes is a well documented phenomenon in international economics this paper develops a structural model to identify the sources of this local currency price stability and applies it to micro data from the beer market the empirical procedure exploits manufacturers and retailers first order conditions in conjunction with detailed information on the frequency of price adjustments following exchange rate changes to quantify the relative importance of local non traded cost components markup adjustment by manufacturers and retailers and nominal price rigidities in the incomplete transmission of such changes to prices we find that on average approximately 60 of the incomplete exchange rate pass through is due to local non traded costs 8 to markup adjustment 30 to the existence of own brand price adjustment costs and 1 to the indirect strategic effect of such costs though these results vary considerably across individual brands according to their market shares

research note price discrimination as an adverse signal why an offer to spread payments may hurt demand firms often search enthusiastically for distinguishing traits that they may use to price discriminate between segments yet there are occasions in which firms forgo the opportunity to price discriminate and instead charge a single price traditional explanations for why retailers forgo the opportunity to price discriminate focus on the cost of discriminating including operational costs explicit discrimination costs and implicit discrimination costs in this paper we identify an additional reason for why firms may forgo an opportunity to price discriminate by revealing that a product is being sold to a broad range of segments a retailer implicitly claims that the product is suitable for each segment however claiming that a premium quality product is suitable for price sensitive consumers undermines the credibility of a retailer s quality claim the signaling explanation was motivated by extensive discussions over more than a year with a major catalog retailer that sells premium quality jewelry and gifts discussions with managers revealed that they were reluctant to use any price discrimination mechanism that signals their products are targeted at price sensitive customers for example the catalog does not include sale or clearance sections and does not target more price sensitive customers by using separate items however management was under some pressure to consider installment billing offers which allow customers to pay over a series of periods rather than in a lump sum management feared that offering installment billing may adversely affect customers quality perceptions and demand to investigate this issue we develop a general game the oretic model illustrate how the model extends to installment billing and conduct a large scale field test the general model illustrates how selling to multiple segments may lead to an adverse quality signal we illustrate how the model extends to installment billing offers in a direct mail catalog installment billing offers allow customers to spread the total payment over a series of payments all customers have the option of using installment billing and customers who use the plan receive an economic benefit an interest free loan we would normally expect this type of offer to increase demand or at a minimum leave demand unchanged however because installment billing offers target credit constrained customers we predicted that the introduction of installment billing would prompt an unfavorable quality inference and reduce demand among quality sensitive customers we empirically investigated this prediction in a large scale field test with a catalog that offers premium quality jewelry and gifts two versions of the catalog were created a test version that contained an installment billing offer and a control version in which installment billing was not offered importantly the prices in both the test version and control version were identical approximately 240 000 catalogs were mailed and customers were randomly assigned to either the test version or control version results show that the installment billing offer test version was associated with both a reduction in the number of orders received and a reduction in aggregate revenue offering installment billing resulted in approximately 15 000 in lost revenue the only plausible explanation for this counterintuitive finding appears to be the signaling theory to investigate the long term effects the catalog agreed to survey their customers to measure how an offer of installment billing affects their customers quality perceptions similar to the field test two versions of a catalog were created and customers were randomly mailed a catalog along with a short survey respondents were asked to browse through the catalog and return their responses in a replypaid envelope the findings are consistent with customer beliefs in the signaling model offering installment billing lowers the perceived quality of the items in the catalog the field test and survey findings were both statistically significant and managerially relevant together the results convinced the catalog not to include installment billing offers in future catalogs

when do entrepreneurs accurately evaluate venture capital firms track records a bounded rationality perspective there has been substantial research on the value of young firms engaging high quality partners this literature as well as the broader firm reputation literature has tended to assume that individ

do gasoline prices respond asymmetrically to crude oil price changes the authors test and confirm that retail gasoline prices respond more quickly to increases than to decreases in crude oil prices among the possible sources of this asymmetry are production inventory adjustment lags and market power of some sellers by analyzing price transmission at different points in the distribution chain the authors attempt to shed light on these theories spot prices for generic gasoline show asymmetry in responding to crude oil price changes which may reflect inventory adjustment effects asymmetry also appears in the response of retail prices to wholesale price changes possibly indicating short run market power among retailers