optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

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

on the fisher konieczny index of price changes synchronization this note provides a structural interpretation for the index of price changes synchronization proposed by fisher and konieczny 2000 economics letters 68 271 277 and shows that it can be used to test the hypothesis of uniform

imperfectly credible disinflation under endogenous time dependent pricing the real effects of an imperfectly credible disinfl ation depend critically on the extent of price rigidity therefore the study of how policymakers credibility affects the outcome of an announced disinflation should not be dissociated from the analysis of the determinants of the frequency of price adjustments in this paper we examine how the policymaker s credibility affects the outcome of an announced disinflation in a model with endogenous time dependent pricing rules both the initial degree of price ridigity calculated optimally and more notably the changes in contract length during disinflation play an important role in the explanation of the effects of imperfect credibility we initially evalute the costs of disinfl ation in as etup where credibility is exogenous and then allow agents to update beliefs about the type of monetary authority that they face we show that in both cases the interaction between the endogeneity of time dependent rules and imperfect credibility increases the output costs of disinflation

dynamic pricing behavior in perishable goods markets evidence from secondary markets for major league baseball tickets sellers of perishable goods increasingly use dynamic pricing strategies as technology makes it easier to change prices and track inventory this paper tests how accurately theoretical models of dynamic pricing describe sellers behavior in secondary markets for event tickets a classic example of a perishable good it shows that the simplest dynamic pricing models describe very accurately both the pricing problem faced by sellers and how they behave explaining why sellers cut prices dramatically by 40 percent or more as an event approaches the estimates also imply that dynamic pricing is valuable raising the average seller s expected payoff by around 16 percent

reducing the cost of demand uncertainty through accurate response to early sales traditionally fashion products have incurred high losses due to stockouts and inventory obsolence because long lead times coupled with a concentrated selling season force all or at least most production to be committed before demand information is available under a quick response system lead times are shortened sufficiently to allow a greater portion of production to be scheduled in response to initial demand we model and analyze the decisions required under quick response and give a method for estimating the demand probability distributions needed in our model we applied these procedures with a major fashion skiwear firm and found that cost relative to the current informal response system was reduced by enough to increase profits by 60 relative to the cost that would have been incurred if no response were used optimized response reduces cost by enough to roughly quadruple profits

demand uncertainty and sales a study of fashion and markdown pricing the theory of clearance sales is expanded and applied to explain why markups markdowns and the frequency of sales of merchandise sold by department stores have increased dramatically in recent years and why they differ across merchandise groups tha major theme of the paper is that the growing role of fashion and product variety is an important reason for these increases and for the differences between merchandise groups the growing importance of fashion is illustrated by documenting the declining use of whites and the increasing use of colors and prints estimates of the effects of imports and technological and demographic changes on markups and markdowns are presented copyright 1988 by american economic association

the outputs of retail activities concepts measurement and evidence from u s census data the authors develop a new economic framework for the empirical analysis of retail margins this framework formalizes the role of distribution services as outputs of retail activities their main results are the following the measures of outputs of retail activities identified in the data perform as important and robust determinants of retail margins variables that purport to capture oligopolistic features of market structure play a limited or no role in determining retail margins quantity setting and price setting under the assumptions of profit maximization and monopolistic competition are categorically rejected by the data the data base is information on 49 retail sectors from the 1982 u s census of retail trades copyright 1993 by mit press

sales and monetary policy this paper analyses the efiect of monetary policy in a model where sales occur in equilibrium some consumers are loyal to a particular brand of a good others are bargain hunters as a result producers flnd it optimal to sell their goods at a normal price through some retailers and at a sale price through others the margin of adjusting the amount sold on sale is potentially very important if producers can adjust the fraction sold on sale with sticky prices and wages money is approximately neutral if we ignore the reasons behind sales but that result changes dramatically when we consider that producers optimally choose to sell some of their goods on sale owing to strategic substitutabilities in the sales decision money has strong procyclical efiects

fashion styling and the within season decline in automobile prices between 1954 and 1989 the seasonal variation in retail new car prices declined while the annual percentage decline in used car prices lessened to explain these long term changes this article suggests that a rise in the cost of a major model change has reduced the frequency of major model changes changed the characteristics of new models and resulted in smaller within season price declines new cars of adjacent model years have become closer substitutes as the importance of the annual model change has lessened the american automobile has slowly become less of a fashion product because it has become increasingly costly to supply frequent styling changes in contrast the within season price decline in women s apparel has increased over time as fashion has become more important reasons for the different price patterns are investigated

subprime borrowers securitization and the transmission of business cycles a growing literature i e jaffee lynch richardson and van nieuwerburgh 2009 acharya and schnabl 2009 argues that securitization improves financial stability if the securitized assets are held by capital market participants rather than financial intermediaries i construct a quantitative macroeconomic model with a novel specification for mortgage backed securities mbs to evaluate this claim my findings suggest that the existence of the securitization market stabilizes the economy under the condition that financial intermediaries do not engage in the acquisition of securitized assets in the presence of large negative housing preference shocks the drop in output in the first year after the shock is halved if subprime mbs are purchased by non financial agents rather than held by banks less

contract durations in the electricity market causal impact of 15 min trading on the epex spot market abstract the european power exchange epex introduced two new products in 2011 and 2014 which reduce the delivery duration of electricity from 1 h to 15 min intervals these changes to the market design aim to better reflect the intermittent power generation from renewable energy sources however little is known about trading in shorter intervals and its impact on the existing market as a remedy our evaluation first shows that the market has quickly adopted the new 15 min contracts second we estimate a bayesian structural time series which measures a causal decrease of electricity prices depending on the model specification our results indicate that the reduction can be as high as 28 for existing hourly contracts subsequent to the introduction of 15 min trading third the use of 15 min contracts coincides with intermittent power generation as it incentivizes renewable energy providers to offer additional electricity altogether our findings suggest that 15 min trading is used to balance the intra hour volatility of renewable energy sources consequently this presents a blueprint for policy makers who can attain similar price reductions and larger feed ins from renewable energy sources without direct costs in all countries with high shares of renewable energy sources

how the world achieved consensus on monetary policy the worldwide progress in monetary policy is a great achievement and especially considering the situation 30 years ago a remarkable success story i describe how the world achieved a working consensus on the core principles of monetary policy by the late 1990s i survey the muddled state of affairs in the 1970s and then ask what happened in federal reserve policy to produce an understanding of the practical principles of monetary policy how did formal institutional support for targeting low inflation abroad follow from an international acceptance of these ideas and how did a consensus theoretical model develop in academia i explain how the modern theoretical consensus known alternatively as the new neoclassical synthesis or the new keynesian model of monetary policy reinforces key advances the priority for price stability the targeting of core rather than headline inflation the importance of credibility for low inflation and preemptive interest rate policy supported by transparent objectives and procedures of course a working consensus does not constitute complete agreement accordingly the conclusion identifies important monetary policy issues that remain to be explored

clearance pricing and inventory policies for retail chains clearance pricing and end of season inventory management are challenging and important problems in retailing sales rates depend upon price seasonal effects and the remaining assortment of items available to customers there is little time to react to observed sales and pricing errors result in either loss of potential revenue or excess inventory to be liquidated this paper develops optimal clearance prices and inventory management policies that take into account the impact of reduced assortment and seasonal changes on sales rates versions of these policies have been tested and implemented at three major retail chains and these applications are summarized and discussed

the outputs of retail activities french evidence a new economic framework is applied to the empirical analysis of retail margins this framework is founded on the definition of profits and incorporates recent theoretical developments formalizing the role of distribution services as outputs of retail activities the main results are the measures of outputs of retail activities identified in the data perform as important and robust determinants of retail margins variables that purport to capture the oligopolistic features of market structure have little association with the variation in retail margins hypotheses of price setting and quantity setting under the assumptions of profit maximization and monopolistic competition are categorically rejected by the data the data base is information on 50 retail sectors from the 1982 survey of firms in commerce and the 1983 survey of firms in services reported by insee

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

demand dynamics in the seasonal goods industry an empirical analysis this study develops and estimates a dynamic model of consumer choice behavior in markets for seasonal goods where products are sold over a finite season and availability is limited in these markets retailers often use dynamic markdown policies in which an initial retail price is announced at the beginning of the season and the price is subsequently marked down as the season progresses strategic consumers face a trade off between purchasing early in the season when prices are higher but goods are available and purchasing later when prices are lower but the stockout risk is higher if the good starts providing utility as soon as it is purchased e g apparel consumers purchasing earlier in the season can also get more use from the product compared to those purchasing later our structural model incorporates three features essential for modeling the demand for seasonal goods changing prices limited availability and possible dependence of total consumption utility on the time of purchase in this model heterogeneous consumers have expectations about future prices and product availability and they strategically time their purchases we estimate the model using aggregate sales and inventory data from a fashion goods retailer the results indicate that in the fashion goods context ignoring consumers expectations about future availability or the change in total consumption utility over the season can lead to biased demand estimates we find that strategic consumers delay their purchases to take advantage of markdowns and that these strategic delays hurt the retailer s revenues retailer revenues facing strategic consumers are 9 lower than they would have been facing myopic consumers limited availability on the other hand reduces the extent of strategic delays by motivating consumers to purchase earlier we find that the impact of strategic delays on retailer revenues would have been as high as 35 if there were no stockout risk by means of counterfactual experiments we show that the highest retailer profits are achieved by offering small markdowns early in the season on the other hand given current markdown percentages the retailer can improve profits by carrying less stock as consumers accelerate purchases and purchase at higher prices when they anticipate scarcity in future periods as long as the reduction in availability is not great the profit gain from earlier higher priced sales can overcome the loss resulting from the reduction in overall sales

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

optimal inflation rates with the trending relative price of investment abstract i study the effect of the trending relative price of investment on the optimal target rate of inflation in an estimated dynamic general equilibrium model of the u s economy the price of investment has a decreasing trend relative to that of consumption because of investment specific technological progress if the prices of investment goods are sticky a benevolent planner puts weight on stabilizing these prices which works to raise the optimal target rate of inflation in terms of the price of consumption the estimated model shows a high degree of price stickiness in an investment sector and the resulting optimal target rate of inflation is significantly positive this result is robust to an extended model in which the prices of some categories of investment goods are flexible

has the euro changed the business cycle abstract in contrast to the notion that the exchange rate regime is non neutral there is little evidence that emu has systematically changed the european business cycle in fact we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross country correlations to account for this finding we develop a two country business cycle model which is able to replicate key features of european data in particular the model correctly predicts a limited effect of emu on standard business cycles statistics however further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism cross country spillovers have become relatively more domestic shocks relatively less important in accounting for economic fluctuations under emu this explains why there is little change in unconditional volatilities

how do fiscal and technology shocks affect real exchange rates new evidence for the united states abstract using vector autoregressions on u s time series relative to an aggregate of industrialized countries this paper provides new evidence on the dynamic effects of government spending and technology shocks on the real exchange rate and the terms of trade to achieve identification we derive robust restrictions on the sign of several impulse responses from a two country general equilibrium model we find that both the real exchange rate and the terms of trade whose responses are left unrestricted depreciate in response to expansionary government spending shocks and appreciate in response to positive technology shocks

the benefits of advance booking discount programs model and analysis consider a retailer who sells perishable seasonal products with uncertain demand due to the short sales season and long replenishment lead times associated with such products the retailer is unable to update demand forecasts by using actual sales data generated from the early part of the season and to respond by replenishing stocks during the season to overcome this limitation we examine the case in which the retailer develops a program called the advance booking discount abd program that entices customers to commit to their orders at a discount price prior to the selling season the time between placement and fulfillment of these precommitted orders provides an opportunity for the retailer to update demand forecasts by utilizing information generated from the precommitted orders and to respond by placing a cost effective order at the beginning of the selling season in this paper we evaluate the benefits of the abd program and characterize the optimal discount price that maximizes the retailer s expected profit

can bait and switch benefit consumers we present a model that leads to an equilibrium with characteristics similar to the following stylized facts observed in retail markets a retailers advertise only selected brands b often low priced advertised brands are understocked c in store promotions are biased towards more expensive substitute brands together these practices constitute illegal bait and switch is this phenomenon necessarily harmful to consumers and to the economy we show that bait and switch can benefit consumers because utility is created through in store promotions and price competition is enhanced this suggests that the ftc investigate further its ban on bait and switch

environmental policy and macroeconomic dynamics in a new keynesian model this paper studies the dynamic behavior of an economy under different environmental policy regimes in a new keynesian model with nominal and real uncertainty we find the following results i an emissions cap policy is likely to dampen macroeconomic fluctuations ii staggered price adjustment alters significantly the performance of the environmental policy regime put in place iii the optimal environmental policy response to shocks is strongly influenced by the degree to which prices adjust and by the monetary policy reaction

how do individual uk producer prices behave this article presents a number of stylised facts about the behaviour of individual uk producer prices first on average 26 of prices change each month although there is considerable heterogeneity between sectors second the probability of price changes is not constant over time third the distribution of price changes is wide although a significant number of changes are relatively small fourth prices that change more frequently do so by less conventional pricing theories struggle to match these results particularly the marked heterogeneity

sticky prices in the euro area a summary of new micro evidence this paper summarises the vast evidence on micro price setting recently obtained for euro area countries we consider studies with micro data on consumer and producer prices as well as survey information the main findings are 1 prices in the euro area are sticky and stickier than in the us 2 downward price rigidity is only slightly more marked than upward price rigidity 3 heterogeneity and asymmetries are observed in price setting and 4 the relevance of theories that explain price stickiness such as implicit or explicit contracts marginal costs and coordination failure is confirmed whereas menu costs pricing thresholds and costly information explanations are judged much less relevant by firms jel c25 d40 e31

price stickiness in ss models new interpretations of old results abstract what is the relation between infrequent price adjustment and the dynamic response of the aggregate price level to monetary shocks the answer to this question ranges from a one to one link calvo g 1983 prices in a utility maximizing framework journal of monetary economics 12 383 398 to no connection whatsoever caplin a spulber d 1987 menu costs and the neutrality of money quarterly journal of economics 102 703 726 the purpose of this paper is to provide a unified framework to understand the mechanisms behind this wide range of results in doing so we propose new interpretations of key results in this area which in turn suggest the kind of ss model that is likely to generate substantial price rigidity among these new interpretations we revisit caplin and spulber s monetary neutrality result we show that when price stickiness is measured in terms of the impulse response function this result is not a consequence of aggregation as is often assumed but is due instead to the absence of price stickiness at the microeconomic level we also show that the selection effect according to which units that adjust their prices are those that benefit the most is neither necessary nor sufficient to account for the higher aggregate flexibility of ss type models compared to calvo models instead the key concept is the contribution of the extensive margin of adjustment to the aggregate price response the aggregate price level is more flexible than suggested by the microeconomic frequency of adjustment if and only if this term is positive

a theory of channel price promotions manufacturers can stimulate sales by a temporary wholesale price reduction for the retailer a rebate directed toward consumers or a combination of both the trade offs between these price promotions are analyzed providing insights about their roles profitability and welfare properties retailers rebates are also studied while price discrimination is a common explanation for rebates to consumers when a product is sold through a distribution channel the manufacturer may also use rebates to motivate retail participation in the promotion this explains why rebates may be offered even when all consumers use them and price discrimination does not occur copyright 1991 by american economic association

periodic pricing of seasonal products in retailing this paper studies intertemporal pricing policies when selling seasonal products in retail stores we first present a continuous time model where a seller faces a stochastic arrival of customers with different valuations of the product for this model we characterize the optimal pricing policies as functions of time and inventory we use this model as a benchmark against which we compare more realistic models that consider periodic pricing reviews we show that the structure of the optimal pricing policies in this case is consistent with the procedures observed in practice retail stores successively discount the product during the season and promote a liquidation sale at the end of the planning horizon we also show that the loss experienced when implementing periodic pricing reviews instead of continuous policies is small when the appropriate number of reviews is chosen several interesting economic insights emerge from our analysis for example uncertainty in the demand for new products leads to higher prices larger discounts and more unsold inventory finally we study the effect of announced discount policies on prices and profits we show that stores that have adopted this type of strategy usually set prices such that with high probability the merchandise is sold during the first periods and the largest discounts rarely take place

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

the impact of product substitution on retail merchandising abstract we analyze the impact of product substitution on two key aspects of retail merchandising order quantities and expected profits to perform this analysis we extend the basic news vendor model to include the possibility that a product with surplus inventory can be used as a substitute for out of stock products this extension requires a definition and an approximation for the resulting effective demand under substitution a service rate heuristic is developed to solve the extended problem the performance of this heuristic is evaluated using an upper bound generated by solving the associated lagrangian dual problem our analysis suggests that this heuristic provides a tractable and accurate method to determine order quantities and expected profits under substitution we apply this heuristic to examine how the level of demand uncertainty and correlation and the degree of substitution between products affect order quantities and expected profits under substitutable demand in addition we use the heuristic to better understand the mechanism by which substitution improves expected profits

consumer rationing and the posssibility of intertemporal price discrimination abstract intertemporal price discrimination is explained from consumer rationing if some consumers who have a low valuation for a good are served first at low prices high valuation consumers buy at a high price although they rationally foresee future price drops price discrimination then yields more profits to a monopolist than a uniform pricing strategy

the elusive costs of inflation price dispersion during the u s great inflation a key policy question is how high an inflation rate should central banks target this depends crucially on the costs of inflation an important concern is that high inflation will lead to inefficient price dispersion workhorse new keynesian models imply that this cost of inflation is very large an increase in steady state inflation from 0 to 10 yields a welfare loss that is an order of magnitude greater than the welfare loss from business cycle fluctuations in output in these models we assess this prediction empirically using a new data set on price behavior during the great inflation of the late 1970s and early 1980s in the united states if price dispersion increases rapidly with inflation we should see the absolute size of price changes increasing with inflation price changes should become larger as prices drift further from their optimal level at higher inflation rates we find no evidence that the absolute size of price changes rose during the great inflation this suggests that the standard new keynesian analysis of the welfare costs of inflation is wrong and its implications for the optimal inflation rate need to be reassessed we also find that nonsale prices have not become more flexible over the past 40 years

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

assortment planning in fashion retailing methodology application and analysis abstract assortment planning is the process conducted by the retailer to determine the number and types of products in a line key questions that arise in this process include choosing the inventory depth and variety breadth and the mix between basic and fashion merchandise of the assortment to maximize expected profits we describe a method for resolving these questions using demand forecasts derived from historical sales patterns we use a nonlinear integer programming model to make the assortment choice efficient heuristics are developed to solve this problem we applied our method at a large catalog retailer specializing in women s apparel we compared our method to the existing rules used by this retailer and found that it could choose the assortment in a manner that reduces markdowns due to excessive inventory and lost margins due to stockouts by enough to increase profits by at least 40 insights are developed to better understand why products are included in an assortment and the implications of this choice on the realized profit we extend our model to include shelf space constraints and the effect of assortment choice on product demand

closely competing firms and price adjustment some findings from an online marketplace we investigate retailers price setting behavior using a unique dataset containing by the second records of prices offered by closely competing retailers on a major japanese price comparison website first we find that when the average price of a product across retailers falls rapidly the frequency of price adjustments increases and the size of price adjustments becomes larger second we find positive autocorrelation in the frequency of price adjustments implying that there tends to be clustering where price adjustments occur in succession in contrast there is no such autocorrelation in the size of price adjustments these two findings indicate that the behavior of competing retailers is characterized by state dependent pricing rather than time dependent pricing

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

rigid prices evidence from u s scanner data this paper uses over two years of weekly scanner data from two small us cities to characterize time and state dependence of grocers pricing decisions in these data the probability of a nominal adjustment declines with the time since the last price change even after controlling for heterogeneity across store product cells and replacing sale prices with regular prices we also detect state dependence the probability of a nominal adjustment is highest when a store s price substantially diers from the average of other stores prices however extreme prices typically reflect the selling store s recent nominal adjustments rather than changes in other stores prices

seasonality and the effect of advertising on price does advertising make markets more or less competitive this paper lays out an econometric strategy for estimating the effect of advertising on prices that exploits seasonal demand and imperfect targeting of consumers we find mostly negligible effects of advertising on prices at monthly frequency among the 35 of 131 product categories with sufficient advertising seasonality to justify second stage estimation only nine have a significant effect and those are typically small this finding is essentially the result of the much greater seasonality in advertising than price

lumpy price adjustments a microeconometric analysis based on a reduced form state dependent pricing model with random thresholds we specify and estimate a nonlinear panel data model with an unobserved factor representing the common cost or demand components of the unobserved optimal price using this model we are able to assess the relative importance of common and idiosyncratic shocks in explaining the frequency and magnitude of price changes in the case of a wide variety of consumer products in belgium and france we find that the mean level and variability of the random thresholds are key for explaining differences across products in the frequency of price changes we also find that the idiosyncratic shocks represent the most important driver of the magnitude of price changes supplementary materials for this article are available online

retail price dynamics and retailer heterogeneity uk evidence we examine retailer heterogeneity in price adjustment in uk supermarkets considerable variation in the price change frequency of identically bar coded products among retail chains is found decomposition analysis suggests that price adjustment is evenly split between sales and reference prices with substantive variation across retailers

heterogeneity in consumer price stickiness we examine heterogeneity in price stickiness using a large original set of individual price data collected at the retail level for the computation of the french consumer price index for that purpose we estimate at a very high level of disaggregation a piecewise constant hazard model as well as competing risks duration models that distinguish between price increases price decreases and product replacements the main findings are the following a at the product outlet type level the baseline hazard function of a price spell is nondecreasing b cross product and cross outlet type heterogeneity is pervasive both in the shape and the level of the hazard function as well as in the impact of covariates c there is strong evidence of state dependence especially for price increases d there is an asymmetry because determinants of price increases differ from those of price decreases

a quantized approach to rational inattention abstract in this paper i propose a model of rational inattention where the choice variable is a deterministic function of the exogenous variables and still only a finite amount of information is being used this holds provided the choice variable is discrete rather than continuous that is the mapping from the realization of the exogenous variables to the endogenous ones is piece wise constant thus limited information is now a source of lumpiness in behavior rather than a source of noise the approach is applied to a simple static model of price setting where individual price setters face aggregate monetary shocks and idiosyncratic productivity shocks the effect of aggregate money shocks on output and prices is studied it is shown that as the variance of idiosyncratic shocks become large the aggregate log price level converges to a linear function of the aggregate money shock with a coefficient which is strictly between 0 and 1 consequently unanticipated aggregate money shocks have real effects on output in contrast to the sticky price model of caplin and spulber 1987 but these effects are smaller than in standard rational inattention models or in the lucas 1972 misperception model

short term electricity trading for system balancing an empirical analysis of the role of intraday trading in balancing germany s electricity system abstract previous studies have noted that unexpectedly germany s dramatic expansion of wind and solar energy coincided with a reduction of short term balancing reserves this observation has been dubbed the german balancing paradox this paper provides further and updated evidence since 2011 wind and solar energy have nearly doubled while both reserve requirements and reserve use have declined by 50 the paper quantitatively explores one reason for reduced balancing needs increased and improved short term wholesale electricity trading on the intraday market trading is now commonly done around the clock and based on quarter hour rather than full hour contracts the shift to quarter hourly products alone explains a decrease in balancing energy by 17 there is also strong evidence that market parties respond efficiently to imbalance charges suggesting that incentive based approaches to electricity balancing work

price setting in the euro area some stylized facts from individual producer price data this paper summarizes the microevidence on the setting of producer prices in the euro area the main findings are i 21 of producer prices are adjusted each month ii producer prices are changed more frequently and by smaller amounts than consumer prices even after controlling for product characteristics iii price decreases are relatively frequent iv inflation correlates positively with the difference between the frequency of price increases and decreases and v there is substantial variation in price flexibility across sectors which can be explained in part by differences in the cost structure the degree of competition and the level of sectoral inflation

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

rational inattention and organizational focus this paper studies optimal communication flows in organizations a production process can be coordinated ex ante by letting agents stick to a prespecified plan of action alternatively agents may adapt to task specific shocks in which case tasks must be coordinated ex post using communication when attention is scarce an optimal organization coordinates only a few tasks ex post those tasks are higher performing more adaptive to the environment and influential hence scarce attention requires setting priorities not just local optimization our results provide microfoundations for a central idea in the management literature that firms should focus on a limited set of core competencies

new evidence on inflation persistence and price stickiness in the euro area implications for macro modeling this paper evaluates new evidence on price setting practices and inflation persistence in the euro area with respect to its implications for macro modeling it argues that several of the most commonly used assumptions in micro founded macro models are seriously challenged by the new findings jel e31 e52

price points and price dynamics abstract a standard model of price setting is extended to include an important role for price points as well as sticky information it makes empirically reasonable predictions about the frequency of price adjustments the sizes of price increases and decreases the shape of the hazard function the fraction of price changes that are price increases and the relationship between price changes and inflation when the model of price setting is integrated into a small scale dsge model it implies plausible aggregate effects of monetary policy in contrast to a model with a prominent role for price points but no information rigidities

durable goods monopoly with limited choice of commitment strategy when should the monopolist precommit consider a firm a monopolist offering a unique product to a fixed number of potential customers suppose that no consumer desires more than one unit of the good within a given period or across periods that is there is no value to repeat purchases in addition suppose that customers vary with respect to their initial reservation prices which decline over time a natural interpretation is that the monopolist is selling a good that is durable alternatively the firm is providing an entertainment or fashion good consumers may place a premium on obtaining the product quickly before it becomes less useful less stylish or less novel coase 7 conjectured that this firm s ability to extract surplus is limited because the firm has to compete with itself across time periods high valuation customers would be unwilling to pay a high initial price because they would anticipate that over time the firm will be reducing the price in order to sell to lower valuation customers subsequent literature formalizes this as a time inconsistency problem faced by a monopolist unable to make intertemporal commitments a separate strand of the literature proceeds from the polar assumption that the monopolist can precommit to any multiperiod pricing strategy comparison to coase s monopolist is simple higher profits are obtainable under precommitment because more surplus is extracted from high valuation customers an important proposition due to stokey 22 is that it will be optimal for the monopolist to precommit to a declining intertemporal price schedule if consumers with higher initial valuations have a higher rate of time preference 2 otherwise the optimal strategy is to hold price constant at the static monopoly level and to sell no more than the static monopoly quantity 3

synchronization of price changes by multiproduct firms evidence from canadian newspaper prices abstract using data for canadian daily newspapers we find that price changes of papers owned by the same firm are synchronized on the other hand independently owned newspapers do not appear to change their prices together

why are products sold on sale explanations of pricing regularities this paper reports on interesting changes in markdown pricing practices over time and differences in the pricing within a product line the price discrimination and the uncertainty hypotheses appear to better explain the data than the peak load hypothesis fashion has become more important over time and appears to explain the greater seasonal variation in retail apparel prices in recent years differences in uncertainty also explains differences in the pricing of different types of men s dress shirts

congestion management rules and trading strategies in the spanish electricity market abstract this paper analyses the economic incentives embodied in the rules governing the resolution of transmission constraints in the spanish wholesale electricity market and the way these incentives may have influenced on the trading behaviour of both the generators and the demand side the evidence obtained is consistent with them responding to these incentives in particular buyers would respond to the way congestion costs are billed to them by abandoning the daily market in favour of the intraday market as far as possible additionally some strategic generators may have been prompted the system operator to require them to inject electricity into the system to solve network congestions finally these results may contribute to shed light on what should be expected of the reform in the aforementioned rules

quantitative easing is not as unconventional as it seems policy interest rates do not have to be short the means by which monetary authorities influence prices and quantities can differ but the obstacles to altering one rather than the other are not insuperable inflation is sluggish and expectations of future interest rates long and short nominal and real are diverse and uncertain these factors determine the limited power that monetary authorities enjoy when they conduct quantitative easing but this policy is not as unconventional as some have claimed and indeed can be viewed as broadly similar to conventional monetary measures the impact of quantitative easing however could be very different depending on the underlying structure of the economy and the fiscal authorities responses finally we note some important caveats that must be borne in mind when trying to evaluate the impact of quantitative easing particularly given the fact that the world s main financial markets are closely linked copyright 2012 oxford university press

yesterday s bad times are today s good old times retail price changes are more frequent today than in the 1890s this paper documents differences in the nominal rigidity of retail prices across two 28 month periods 1889 91 and 1997 99 the most striking finding is that prices changed much less frequently in 1889 91 in the late 1800s when price changes did occur they were smaller on average and more narrowly distributed with fewer small or large price changes further price changes were more permanent 100 plus years ago these differences are consistent with a high occurrence of temporary price shocks and a higher cost of changing prices in 1889 91 than in 1997 99

learning forgetting and sales sellers of almost any product or service rarely keep their prices constant through time and frequently offer price discounts or sales this paper investigates an explanation of sales as a way for uninformed consumers to be willing to experience the product and learn about its fit and where informed consumers may forget about or change their preferences we investigate the role of the rate of consumer forgetting on the timing between sales and of the rate of consumer learning and menu costs on the length of a sale the rate of consumer forgetting can be linked to the length of purchase cycle and the level of consumer involvement we show that the discount frequency and the discount depth are increasing in the rate of consumer forgetting and that the discount frequency is increasing in the learning rate the duration of a sale is increasing in the rate of consumer forgetting and the rate of consumer learning

sales and collusion in a market with storage sales are a widespread and well known phenomenon documented in several product markets this paper presents a novel rationale for sales that does not rely on consumer heterogeneity or on any form of randomness to explain such periodic price fluctuations the analysis is carried out in the context of a simple repeated price competition model and establishes that firms must periodically reduce prices in order to sustain collusion when goods are storable and the market is large the largest equilibrium profits are characterized at any market size a trade off between the size of the industry and its profits arises sales foster collusion by magnifying the inter temporal links in consumers decisions

on economic inefficiency of european inter tso compensation mechanism abstract economic inefficiency of european inter transmission system operator itc mechanism is demonstrated by means of statistical analysis of a time series of natural quantities production consumption and exchange of energy as well as by devising a simple model that shows that the current system misallocates relevant costs between transmission system operators tsos involved then the reasons for this apparent inefficiency are discussed it is concluded that under existing eu policy rules in electricity sector it is not possible to construct a compensation mechanism that would perform a correct reallocation of external costs incurred by energy transits among interconnected networks operated by different tsos then simple microeconomic models that exhibit a correct compensation of costs with rules of the game set differently than by today s eu regulatory framework are presented

price changes in the euro area and the united states some facts from individual consumer price data prices of goods and services do not adjust immediately in response to changing demand and supply conditions this paper characterizes the average frequency and size of price changes in the euro area and its member countries investigates the determinants of the probability of price changes and compares the evidence for the euro area with available u s results the facts documented in this paper are based on evidence from individual price data recorded at the store level in all euro area countries except ireland and greece that is in datasets covering austria belgium finland france germany italy luxembourg the netherlands portugal and spain which together account for around 97 percent of euro area gdp the data used are the monthly price records underlying the computation of national consumer price indices and harmonized consumer price indices these data cover a large number of products selected on the basis of extensive household budget surveys

optimal monetary policy responses to relative price changes abstract an optimizing model with a flexible price sector and a sticky price sector is presented to analyze the effects of relative price changes on inflation fluctuations the relative price of the flexible price good represents a shift parameter of the new keynesian phillips curve the optimal monetary policy is to target sticky price inflation rather than a broad inflation measure although stabilizing the relative price around its efficient value is one of the appropriate goals of the central bank stabilizing sticky price inflation is sufficient for achieving this goal an optimal monetary policy for a small open economy is also discussed

the measurement of retail output and the retail revolution the computerization of retailing has made price dispersion a norm in the united states so that any given list price or transactions price is an increasingly imperfect measure of a product s resource cost as a consequence measuring the real output of retailers has become increasingly difficult food retailing is used as a case study to examine data problems in retail productivity measurement crude direct measures of grocery store output suggest that the cpi for food at home may have been overstated by 1 4 percentage points annually from 1978 to 1996 this abstract was borrowed from another version of this item

patterns of retail price variation we examine retail price variation across a range of goods and regions of the united states we find that the typical grocery product has a regular price and stays at that price at least 50 of the time and that most deviations from that regular price are downward temporary discounts or sales while infrequent account for 20 to 50 of the annual variation in retail prices for most product categories although existing models of retail sales yield predictions consistent with some aspects of the retail pricing distributions all of these models fail to explain other important aspects of retail pricing identified here

optimal best price policy abstract a best price policy bp is a promise by a seller to give her customer a refund if she reduces her price after the customer has already purchased the product we characterize the optimal bp policy as when the seller can control both the policy length when the promise expires and the refund scale what portion of the price difference is refunded we explain why the policy length is finite and varies across industries in a setting where consumers valuations decline over time we show that a finite length bp allows the seller to commit to not lowering her price too soon while at the same time letting her capture some of the benefits of intertemporal price discrimination however because the decline in consumers valuations is uncertain a bp does not allow the monopolist to achieve the profit she could earn with a full commitment

dynamic competition with random demand and costless search a theory of price posting this paper studies a dynamic model of perfectly competitive price posting under demand uncertainty firms must produce output in advance after observing aggregate sales in prior periods firms post prices for their unsold output in each period the demand of a new batch of consumers is randomly activated existing customers who have not yet bought and then new customers arrive at the market in random order observe the posted prices and either purchase at the lowest available price or delay their purchase decision we construct a sequential equilibrium in which the output produced and its allocation across consumers is efficient thus consumers endogenously sort themselves efficiently with the highest valuations purchasing first transaction prices in each period rise continuously as firms become more optimistic about demand followed by a market correction by the last period prices are market clearing

contingent pricing to reduce price risks the price for a product may be set too low causing the seller to leave money on the table or too high driving away potential buyers contingent pricing can be useful in mitigating these problems in contingent pricing arrangements price is contingent on whether the seller succeeds in obtaining a higher price within a specified period we show that if the probability of obtaining the high price is not too high sellers profit from using contingent pricing while economic efficiency increases the optimal contingent pricing structure depends on the buyer s risk attitude a deep discount is most profitable if buyers are risk prone a consolation reward is most profitable if buyers are risk averse to motivate buyers to participate in a contingent pricing arrangement the seller must provide sufficient incentives consequently buyers also benefit from contingent pricing in addition because the buyers with the highest willingness to pay get the product contingent pricing increases the efficiency of resource allocation

a theory of clearance sales clearance sales are widely used by firms as an intertemporal selling policy in particular in markets where firms face demand uncertainty and need to choose capacity in advance clearance sales consist in charging a high price initially but then lowering the price in the sales period high valuation consumers purchase the good at the high initial price so as to avoid rationing at the low price while low valuation consumers wait for the price to drop we develop a simple model of intertemporal monopoly pricing under demand uncertainty and show that clearance sales may be the optimal intertemporal selling policy

trading behaviour on the continuous intraday market elbas intraday markets for electricity allow for trading of energy until shortly before the period of delivery this offers market participants a possibility to reduce their expected imbalances and to of

nominal vs real wage rigidities in new keynesian models with hiring costs a bayesian evaluation abstract the inclusion of labor market frictions in the new keynesian dsge model overcomes the main drawbacks of the baseline framework in this paper we show that this extended model by assuming real wage rigidities does not replicate the correct wage dynamics and the negative conditional correlation between technology shocks and employment observed in the data known as the productivity employment puzzle we show also that these empirical limitations can be overcome by replacing real wage rigidities with nominal wage rigidities without sacrificing other appealing features of the model we adopt a bayesian perspective to estimate the dynamic properties of the model with real wage rigidities and compare them with those of the model with nominal wage rigidities we show that the evidence favors this latter construction

retail gasoline pricing what do we know abstract we use a data set consisting of a three year panel of prices from a sample of gasoline stations located in suburban washington dc and a corresponding census of the region s stations to develop three new empirical findings about retail gasoline pricing first while average retail margins vary substantially over time by more than 50 over the three years we analyze the shape of the margin distribution remains relatively constant second there is substantial heterogeneity in pricing behavior stations charging very low or very high prices are more likely to maintain their pricing position than stations charging prices near the mean third retail gasoline pricing is dynamic despite the heterogeneity in station pricing behavior stations frequently change their relative pricing position in this distribution sometimes dramatically we then relate these three findings to relevant theories of retail pricing while many models of retail pricing are consistent with some of our findings we find that all have serious shortcomings

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

examining the behaviour of individual uk consumer prices this article examines how uk consumer prices behave using two databases with millions of price observations the microdata that underpin official consumer prices index data and a database of supermarket prices prices do not change continuously but our key finding is the marked heterogeneity in the data that is not consistent with standard microeconomic foundations that typically form the basis of macroeconomic policy models declining hazard functions and the distribution of price changes also argue against representative agent models our results suggest further work is needed to find a model of price setting that genuinely corresponds to how individual uk consumer prices behave

identifying barriers to large scale integration of variable renewable electricity into the electricity market a literature review of market design abstract for reaching the 2 c climate target the robust growth of electricity generation from variable renewable energy sources vre in the power sector is expected to continue accommodation of the power system to the variable uncertain and locational dependent outputs of vre causes integration costs integrating vre into a well functioning electricity market can minimize integration costs and drive investments in vre and complementary flexible resources however the electricity market in the european union eu as currently designed seems incapable to deliver this end this paper aims to provide a comprehensive literature review of barriers to the large scale market integration of vre in the eu electricity market design based on the set up of the eu electricity market a framework was developed to incorporate the most pertinent market integration barriers and resulting market inefficiencies this paper concludes that an overhaul is needed for the current eu electricity market to address all barriers identified firstly a discrete auction intraday market a marginal pricing balancing market a two price imbalance settlement and a nodal pricing locational marginal pricing mechanism seem more promising in limiting integration costs secondly to support business cases of vre and complementary flexible resources in the electricity market a level playing field should be established and the price cap should be lifted up to the value of lost load voll meanwhile to fit vre s market participation a higher time resolution of trading products and later gate closure time in different submarkets would be required lastly feed in support schemes currently widely used for vre investments might be inconsistent with market integration as they increase integration costs and lock vre investments in a subsidy dependent pathway to avoid such lock in further investigation of alternative capacity based support schemes is recommended

optimal central bank transparency should central banks increase their degree of transparency any further we show that there is likely to be an optimal intermediate degree of central bank transparency up to this optimum more transparency is desirable it improves the quality of private sector inflation forecasts but beyond the optimum people might 1 start to attach too much weight to the conditionality of their forecasts and or 2 get confused by the large and increasing amount of information they receive this deteriorates the perceived quality of private sector inflation forecasts as a result inflation is set in a more backward looking manner resulting in higher inflation persistence by using a large scale panel data set on the transparency of central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized our results indicate that while several central banks would benefit from further transparency increases some already have reached the optimal level

inventories and the automobile market this article studies the within model year pricing production and inventory management of new automobiles using new monthly data on u s transaction prices we document that for the typical vehicle prices fall over the model year at a 9 0 annual rate concurrently both sales and inventories are hump shaped to explain these time series we formulate an industry model for new automobiles in which inventory and pricing decisions are made simultaneously the model predicts that automakers build to stock inventory management policy substantially influences the time series of prices and sales accounting for four tenths of the price decline observed over the model year

on the relationship between inventory costs and variety benefits in retailassortments consider a category of product variants distinguished by some attribute such as color or flavor a retailer must construct an assortment for the category i e select a subset variants to stock and determine purchase quantities for each offered variant we analyze this problem using a multinomial logit model to describe the consumer choice process and a newsboy model to represent the retailer s inventory cost we show that the optimal assortment has a simple structure and provide insights on how various factors affect the optimal level of assortment variety we also develop a formal definition of the level of fashion in a category using the theory of majorization and examine its implications for category profits

price level targeting and the delegation issue in an open economy a weight conservative central banker setting policy with discretion and stabilizing the real exchange rate adjusted rex price level and the output gap can replicate the behavior of the rate of rex inflation and the output gap under policy from a timeless perspective

dynamic pricing and ordering decisions by a monopolist this paper considers the relationship between pricing and ordering decisions for a monopolistic retailer facing a known demand function where over the inventory cycle the product may exhibit i physical decay or deterioration of inventory called wastage and ii decrease in market value called value drop associated with each unit of inventory on hand the retailer is allowed to continuously vary the selling price of the product over the cycle we introduce a notion of instantaneous margin and use it to derive profit maximizing conditions for the retailer the model explains the markdown of retail goods subject to decay it also provides guidance in determining when price changes during the cycle are worthwhile due to product aging how often such changes should be made and how such changes affect ordering intervals and quantities