strategic responses of incumbents to new entry the effect of ownership structure capital structure and focus we examine how certain firm and market specific characteristics affect incumbent firms responses to new entry into their local markets data comes from the discount department store industry where wal mart entered a large number of markets in a short period of time consistent with existing research larger and more profitable incumbents respond more aggressively to wal mart s entry while more highly levered incumbents respond less aggressively also there is evidence that incumbent managers fight harder possibly overinvest when their job is at greater risk and high managerial ownership appears to reduce this agency problem incumbent firms behave differently in markets under attack by wal mart than in markets not yet threatened suggesting that some of the documented responses are specific to walmart s entry article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

fixed costs and long lived investments abstract fixed costs models are difficult to analyze because they feature non degenerate time varying distributions of capital across firms if investments are sufficiently long lived however then the cross sectional distribution of capital holdings has virtually no bearing on the equilibrium and the aggregate behavior of fixed cost models is essentially identical to neoclassical models the findings are due to a near infinite elasticity of investment timing for long lived investments a feature shared by fixed cost models and neoclassical models irrelevance results found in numerical studies of fixed cost models are not parametric special cases but instead are fundamental properties of models with long lived investment goods

the quantitative analytics of the basic neomonetarist model this paper constructs a dynamic macroeconomic model with less than perfect price flexibility which has a classical side consistent with real business cycle theory augmented by investment adjustment costs increasing returns to scale and a new flexible formalization of imperfect competition something akin to the classical dichotomy is justified by a mode of approximation appropriate for a model in which one state variable adjusts quickly while another state variable adjusts slowly even with investment adjustment costs monetary expansions are found to raise the real interest rate the determinants of real rigidity and the macroeconomic rate of price adjustment are investigated copyright 1995 by ohio state university press

pricing in a customer market in standard pricing models movements in demand are partially offset by price responses in a customer market however price markups may decrease with high demand thus price may magnify rather than stabilize demand movements i consider a monopolist selling a good of which first time consumers are uncertain repeat customers know that the product works the monopolist trades the objectives of exploiting past customers and attracting new ones in a period with many new potential customers the monopolist gives more weight to attracting and lowers its markup last i examine some evidence on whether expansions are periods with disproportionately many new customers

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

is the consumer sector competitive in the u k a test using household level demand elasticities and firm level price equations this article tests the hypothesis of perfect competition in the consumer nondurables sector of the u k economy first it uses household level data to estimate time varying price elasticities of demand for disaggregated commodity groups u s product prices are used as instruments for u k prices in the demand equation then it matches the product definitions to the standard industry classification and uses firm level data combined with the estimated elasticities to estimate a price model of firms operating in different industries household characteristics are used as instruments for the demand effects in the firms supply equation the results reject perfect competition and appear to be consistent with the argument that less competition increases profits through collusion

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

the politics of financial development evidence from trade liberalization incumbents in various industries have different incentives to promote or oppose financial development changes in the relative strength of promoter and opponent industries thus result in changes in the political equilibrium level of financial development we conduct an event study using a sample of 41 countries that liberalized trade during 1970 to 2000 and show that the strengthening of promoter relative to opponent industries resulting from liberalization is a good predictor of subsequent financial development the benefits of developing the financial system are insufficient for financial development and rents in particular hands appear to be necessary to achieve it copyright c 2008 by the american finance association

corporate debt and output pricing in developing countries industry level evidence from turkey abstract the present study is an application of capital structure theory to developing economies where markets are commonly imperfect the industry level data of turkey is used as a benchmark case to investigate the effects of corporate debt on output pricing which in return might have critical implications for stabilization theory the panel estimations on the major two digit industries reveal two basic findings first short term debt leads to an increase in output prices while long term debt has the opposite effect and short term but not long term debt has a cyclical influence on prices second the inflationary effect short term debt implies a lower capital gain and induces higher prices while the effect long term debt implies a higher capital gain and induces lower prices given the predominant share of short term debt in most developing countries these findings suggest an explanation for inflation inertia on the side of corporate sector

new keynesian models durable goods and collateral constraints abstract econometric evidence suggests that in response to monetary policy shocks durable and non durable spending co move positively and durable spending exhibits a much larger sensitivity to the shocks a standard two sector new keynesian model with perfect financial markets is at odds with these facts the introduction of a borrowing constraint where durables play the role of collateral assets helps in reconciling the model with the empirical evidence

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

monetary policy and investment dynamics evidence from disaggregate data we use disaggregated data on the components of private fixed investment pfi to estimate industry level responses of real investment and capital prices to unanticipated monetary policy the response functions derive from a restricted large scale var estimated over 1959 2007 our results point to significant cross sector heterogeneity in the behavior of pfi prices and quantities for assets belonging to the equipment category of fixed investment we find that quantities rather than prices absorb most of the fallout from a policy shock by contrast the price effects tend to be higher and the output effects lower for nonresidential structures

price dispersion over the business cycle evidence from the airline industry this study provides empirical evidence documenting how price dispersion moves with the business cycle in the airline industry performing a fixed effects panel analysis on seventeen years of data covering two business cycles we find that price dispersion is highly pro cyclical this effect is especially pronounced for legacy carriers relative to low cost carriers we show that our empirical result is consistent with firms implementing second degree price discrimination tactics

search costs sticky prices and markups this article investigates how search costs price stickiness and product durability influence the impact of inflation on firm markups we provide evidence that each of these three factors plays an independent role in influencing the responsiveness of markups to inflation although we find that the direct effect of inflation on markups is negative offsetting positive influences of inflation on markups arise in industries that produce durable experience goods with flexible prices thus our results indicate that markups of industries producing nondurable search goods with sticky prices tend to experience unambiguously negative impacts from inflation

equilibrium in a durable goods market with lumpy adjustment abstract durable goods are an important component of the business cycle equilibrium models of durable goods markets are made difficult by the lumpy nature of individual purchases we show that a straightforward approximation of the distribution of durable goods holdings gives rise to a tractable equilibrium model we analyze the case of competition as well as that of a monopoly producer

rent sharing and workers bargaining power an empirical cross country cross industry panel analysis this paper studies how rents are shared between capital and labour using industry level panel data for 19 oecd countries over the 1988 2007 period the first step is an explanation of the rent creation process we provide evidence of a significant impact of regulation on value added prices at the industry level relative to the value added price for the overall economy rent in the second step we dissect the value added sharing process running ols and iv estimations our results confirm the blanchard giavazzi 2003 prediction the impact of rents on the capital share depends on workers bargaining power this article is protected by copyright all rights reserved

anticompetitive financial contracting the design of financial claims this paper presents the first model where entry deterrence takes place through financial rather than product market channels in standard models of the interaction between product and financial markets a firm s use of financial instruments deters entry by affecting product market behavior whereas in our model entry deterrence occurs by affecting the credit market behavior of investors towards entrant firms we find that in order to deter entry the claims held on incumbent firms should be sufficiently risky i e equity in contrast to the standard branderlewis 1986 result that debt deters entry the model sheds light on the policy debate on the separation of banking as to whether banks should be permitted to hold equity in firms it also provides an explanation for why venture capitalists hold automatically convertible securities in start up firms

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

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

price and investment dynamics theory and plant level data we construct a model of a firm competing for market share in a customer market and making investments in physical capital the firm is financially constrained and there are implementation lags in investment our model predicts that product prices should depend on costs and competitors prices but respond weakly to demand shocks also prices should be strongly related to investment we estimate price and investment equations on panel data for swedish manufacturing plants and find results that are qualitatively in line with these predictions though the relation between investment and prices is stronger than predicted by our model

inflation dynamics during the financial crisis using confidential product level price data underlying the u s producer price index ppi this paper analyzes the effect of changes in firms financial conditions on their price setting behavior during the great recession that surrounds the financial crisis the evidence indicates that during the height of the crisis in late 2008 firms with weak balance sheets increased prices significantly relative to industry averages whereas firms with strong balance sheets lowered prices a response consistent with an adverse demand shock these stark differences in price setting behavior are consistent with the notion that financial frictions may significantly influence the response of aggregate inflation to macroeconomic shocks we explore the implications of these empirical findings within a general equilibrium framework that allows for customer markets and departures from the frictionless financial markets in the model firms have an incentive to set a low price to invest in market share though when financial distortions are severe firms forgo these investment opportunities and maintain high prices in an effort to preserve their balance sheet capacity consistent with our empirical findings the model with financial distortions relative to the baseline model without such distortions implies a substantial attenuation of price dynamics in response to contractionary demand shocks

capital structure and output pricing in a developing country this paper uses the industry level data to investigate the effects of corporate debt on output pricing in a typical developing country the panel estimations on the major two digit industries reveal two basic findings first short term debt leads to an increase in output prices while long term debt has the opposite effect second short term debt but not long term debt is found to have cyclical effects on prices

strategic managerial incentives in a two period cournot duopoly abstract this paper examines the nature of optimal managerial incentives in the context of a duopoly marked by competition between the firm s managers in a dynamic production environment if the marginal cost of production falls moderately over time or remains unchanged there exists an equilibrium where one owner requires her manager to maximize profit whereas the rival owner requires her manager to maximize sales revenue the profit maximizing manager turns his firm into a stackelberg leader while the sales revenue maximizing manager turns his firm into a stackelberg follower further the profit maximizing manager may generate a larger firm profit relative to the sales revenue maximizing manager

business cycles and monetary regimes in emerging economies a role for a monopolistic banking sector abstract this study shows that the presence of imperfect competition in the banking system propagates external shocks and amplifies the business cycle strategic limit pricing aimed at protecting retail niches from potential competitors generates countercyclical bank markups markup increments during recessions directly increase borrowing costs for firms and indirectly damage the financial position of firms balance sheets increasing the risk perception of lenders i use bayesian techniques and data from argentina to show that the inclusion of monopolistic banking improves the fit of the new keynesian small open economy model

the effectiveness of hiring credits this article analyses the effectiveness of hiring credits using comprehensive administrative data we show that the french hiring credit implemented during the great recession had significant positive employment effects and no effects on wages relying on the quasi experimental variation in labour cost triggered by the hiring credit we estimate a structural search and matching model simulations of counterfactual policies show that the effectiveness of the hiring credit relied to a large extent on three features it was non anticipated temporary and targeted at jobs with rigid wages we estimate that the cost per job created by permanent hiring credits either countercyclical or time invariant in an environment with flexible wages would have been much higher

the contributions of the economics of information to twentieth century economics in the e eld of economics perhaps the most important break with the past one that leaves open huge areas for future work lies in the economics of information it is now recognized that information is imperfect obtaining information can be costly there are important asymmetries of information and the extent of information asymmetries is affected by actions of e rms and individuals this recognition deeply affects the understanding of wisdom inherited from the past such as the fundamental welfare theorem and some of the basic characterization of a market economy and provides explanations of economic and social phenomena that otherwise would be hard to understand i introduction the century coming to a close has seen vast changes in economics in both ideas and methodology upon ree ection it is remarkable however how many of the seeds of advances in this century were sowed in the previous i would argue that perhaps the most important break with the past one that leaves open huge areas for future work lies in the economics of information the recognition that information is imperfect that obtaining information can be costly that there are important asymmetries of information and that the extent of information asymmetries is affected by actions of e rms and individuals has had profound implications for the wisdom inherited from the past and has provided explanations of economic and social phenomena that otherwise would be hard to understand in this essay i wish to argue that information economics has had directly and indirectly a profound effect on how we think about economics today eighteenth and nineteenth century antecedents to be sure marshall and other nineteenth century economists talked about problems of imperfect information but with one exception discussions of information were obiter dicta caveats at the end of the analysis they were never at the center

quantifying consumer perception of a financially distressed company to measure how consumers respond to negative information about the financial health of a durable goods producer i use the prices at which vehicles sell in secondary markets to quantify consumer perception of the chrysler corporation during the period surrounding the chrysler loan guarantee act of 1979 i focus on chrysler s july 31 1979 announcement of financial distress and request for assistance from the u s government the trend in the prices of used chrysler vehicles relative to those of its american competitors provides strong support for the claim that consumers reduce their willingness to pay for the goods of a financially distressed company

when arm s length is too far relationship banking over the credit cycle we conduct face to face interviews with bank ceos to classify 397 banks across 21 countries as either relationship or transaction lenders we then use the geographic coordinates of these banks branches and of 14 100 businesses to analyze how the lending techniques of banks in the vicinity of firms are related to credit constraints at two contrasting points of the credit cycle we find that while relationship lending is not associated with credit constraints during a credit boom it alleviates such constraints during a downturn this positive role of relationship lending is stronger for small and opaque firms and in regions with a more severe economic downturn moreover our evidence suggests thatrelationship lending mitigates the impact of a downturn on firm growth and does not constitute evergreening of loans

product market competition and the financing of new ventures this paper examines the interaction between venture risk product market competition and the entrepreneur s choice between bank financing and venture capital vc financing under bank financing a debt type contract emerges as optimal which allows the entrepreneur to retain full control of the venture and thus yields strong effort incentives as long as the entrepreneur can service the debt repayment however this leads to liquidation in the case of default making the venture s success quite sensitive to exogenous even temporary shocks that may hinder debt repayment under vc financing an equity type contract emerges as optimal although it is not sensitive to exogenous shocks this contract requires the entrepreneur to share a fraction of the rents with the financier thus yielding lower effort incentives for the entrepreneur there exists a threshold level of venture risk such that bank financing is optimal if and only if venture risk is below that threshold product market competition increases the value of stronger entrepreneurial incentives and thus increases the maximum level of risk the entrepreneur is willing to take before switching from bank financing to vc financing this is a robust result that is shown to hold in various models of competition including the hotelling salop dixit stiglitz and cournot to bertrand switch this paper was accepted by lee fleming entrepreneurship and innovation

liquidation risks in the rotemberg saloner implicit collusion model abstract we extend the rotemberg saloner s 1986 rotemberg j saloner g 1986 a supergame theoretic model of price wars during booms american economic review 76 390 407 implicit collusion framework to the consideration of capital market imperfections captured by a non zero probability of liquidation of firms in recessionary periods we show that the rotemberg saloner result of countercyclical markups is quite robust to the extension and moreover liquidation risks may even strengthen the degree of markup countercyclicality

cyclicality of markups and real wages in korea abstract this paper examines the cyclical patterns of markups real wages and labor share for korean industries markup ratio is greater than 1 in most industries markups are countercyclical and real wages and labor share are procyclical income distribution effect has more impact on determining markups than price and technology effect

pricing production and persistence though built with increasingly precise microfoundations modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks as recently stressed by chari kehoe and mcgrattan 2000 this is an ironic finding since taylor 1980 and other researchers were motivated to study sticky price models in part by the objective of generating large and persistent business fluctuations we trace this lack of persistence to a standard view of the cyclical behavior of real marginal cost built into current sticky price macro models using a fully articulated general equilibrium model we show how an alternative view of real marginal cost can lead to substantial persistence this alternative view is based on three features of the supply side of the economy that we believe are realistic an important role for produced inputs variable capacity utilization and labor supply variability through changes in employment importantly these real flexibilities work together to dramatically reduce the elasticity of marginal cost with respect to output from levels much larger than unity in ckm to values much smaller than unity in our analysis these real flexibilities consequently reduce the extent of price adjustments by firms in time dependent pricing economies and the incentives for paying fixed costs of adjustment in state dependent pricing economies the structural features also lead the sticky price model to display volatility and comovement of factor inputs and factor prices that are more closely in line with conventional wisdom about business cycles and various empirical studies of the dynamic effects of monetary shocks federal reserve bank of philadelphia boston university nber and frb richmond this paper builds on earlier joint work with alexander l wolman on this topic we wish to thank brian boike for providing excellent research assistance and also to thank the referees and the editor for making numerous useful suggestions the views expressed in this article are those of the authors and do not necessarily represent those of the federal reserve bank of philadelphia the federal reserve bank of richmond or the federal reserve system

the transmission of monetary policy in a multisector economy this article constructs and estimates a sticky price dynamic stochastic general equilibrium model with heterogeneous production sectors firms in different sectors vary in their price rigidity production technology and the combination of material and investment inputs in particular firms buy inputs from all sectors using the actual input output matrix and capital flow table of the u s economy by relaxing the standard assumption of symmetry this model allows idiosyncratic sectoral dynamics in response to monetary policy shocks the model is estimated by the generalized method of moments using sectoral and aggregate u s time series

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

financing constraints and the amplification of aggregate downturns this paper shows that during industry downturns firms experience significantly greater valuation losses when their industry peers long term debt is maturing at the time of the shocks across a range of tests the analysis addresses the endogenous determination of peer debt maturity structure overall the evidence suggests that the negative externalities financially constrained firms impose on their industry peers can significantly amplify the effects of industry downturns the evidence also provides support for the view that these amplification effects are driven by the adverse effect that financially constrained firms have on the balance sheets of their industry peers

capital market imperfections and countercyclical markups theory and evidence during recessions output prices seem to rise relative to wages and raw material prices one explanation is that imperfectly competitive firms compete less aggressively during recessions that is markups of price over marginal cost are countercyclical the authors present a model of countercyclical markups based on capital market imperfections during recessions liquidity constrained firms boost short run profits by raising prices to cut their investments in market share the authors provide evidence from the supermarket industry in support of this theory during regional and macroeconomic recessions more financially constrained supermarket chains raise their prices relative to less financially constrained chains copyright 1996 by american economic association

supermarket choice and supermarket competition in market equilibrium multi store firms are common in the retailing industry theory suggests that cross elasticities between stores of the same firm enhance market power to evaluate the importance of this effect in the u k supermarket industry we estimate a model of consumer choice and expenditure using three data sources profit margins for each chain a survey of consumer choices and a data set of store characteristics to permit plausible substitution patterns the utility model interacts consumer and store characteristics we measure market power by calculating the effect of merger and demerger on nash equilibrium prices demerger reduces the prices of the largest firms by between 2 and 3 8 depending on local concentration mergers between the largest firms lead to price increases up to 7 4

tacit collusion under interest rate fluctuations previous literature has shown that demand fluctuations affect the scope for tacit collusion i study whether discount factor fluctuations can have similar effects i find that collusion depends not only on the level of the discount factor but also and more surprisingly on its volatility collusive prices and profits increase with a higher discount factor level but decrease with its volatility these results have important implications for empirical studies of collusive pricing the role that collusive pricing may play in economic cycles and the study of cooperation in repeated games

countercyclical pricing in customer markets i present a dynamic model of price determination in customer markets that are subject to exogenous business cycle fluctuations the business cycle is described in terms of a markov process in which market demand alternates stochastically between fast growth boom and slow growth recession phases in the consumers preferred equilibrium outcome 1 prices are below the monopoly level and 2 prices are countercyclical when demand growth rates are positively correlated through time a firm faces a dynamic trade off when making its current price selection while a higher price may raise a firm s profit in the short term it also may diminish the firm s reputation for low prices leading to lower profits in the future

consumer switching costs and private information abstract we consider a standard model of consumer switching costs with demand uncertainty where firms observe private information about demand given this private information each firm forms beliefs over different demand realizations as well as beliefs over the other firm s information the main result here is that in the first period if firms observe information suggesting that future demand is likely to be high they will price aggressively sacrificing current profits for higher market share and the expectation of higher future profits

volatility and growth credit constraints and the composition of investment abstract how does uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth this paper addresses this question within a model where firms engage in two types of investment a short term one and a long term one which contributes more to productivity growth because it takes longer to complete long term investment has a relatively less cyclical return but it also has a higher liquidity risk the first effect ensures that the share of long term investment to total investment is countercyclical when financial markets are perfect the second implies that this share may turn procyclical when firms face tight credit constraints a novel propagation mechanism thus emerges through its effect on the cyclical composition of investment tighter credit can lead to both higher volatility and lower mean growth evidence from a panel of countries provides support for the model s key predictions

why leverage affects pricing we explain and provide evidence for effects of leverage on pricing our model identifies two effects that either counteract or reinforce each other depending on the debt maturity structure i firms set higher prices underinvest in market share if they have more debt and ii firms engage in dynamic risk shifting by setting lower higher prices if the current debt obligation will be higher lower in the next period than in the present period using a unique dataset of owner managed hotels in austrian ski resorts we provide empirical evidence of both effects

intermediate goods and business cycles implications for productivity and welfare this paper presents an aggregate demand driven model of business cycles that provides a new explanation for the procyclicality of productivity and simultaneously predicts large welfare losses from monetary nonneutrality the key features of the model are an input output production structure imperfect competition countercyclical markups and for some results state dependent price rigidity true technical efficiency is procyclical even though production takes place with constant returns without technology shocks or technological externalities the paper has observable implications that distinguish it empirically from related work these implications are generally supported by data from u s manufacturing industries copyright 1995 by american economic association

optimal pricing with costly adjustment evidence from retail grocery prices in many theoretical models it is assumed that there are costs associated with adjusting prices in this paper the existence type and magnitude of such costs are investigated empirically a discrete choice dynamic programming model that nests fixed and variable costs is developed and econometric estimates of the adjustment cost function are obtained the data used to implement the model consist of weekly retail prices and sales of three brands of saltine crackers sold by four chains of grocery stores in a small u s town the study has several distinguishing characteristics first the data are highly disaggregate at the level of brand and store second variables are sampled at weekly intervals third the model nests fixed and variable adjustment costs and can therefore determine their relative importance finally the discrete choice model is both structural and dynamic

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

an optimizing is lm specification for monetary policy and business cycle analysis we ask whether relations of the is lm type can sensibly be used for the aggregate demand portion of a dynamic optimizing general equilibrium model intended for analysis of issues regarding monetary policy and cyclical fluctuations the main result is that only one change the addition of a term regarding expected future income is needed to make the is function match a fully optimizing model whereas no changes are needed for the lm function this modification leads to a dynamic forward looking model of aggregate demand that is tractable and usable with a wide variety of aggregate supply specifications theoretical applications concerning price level determinacy and gradual price adjustment are included

the dynamics of markups and inventories in retailing firms this paper is concerned with the interaction between price and inventory decisions in retailing firms and its implications for the dynamics of markups and the existence of sales pro motions we consider a model where a monopolistically competitive retailer decides price and inventories and assumes lump sum costs when placing orders or changing nominal prices tn this model the existence of stockout probabilities and fixed ordering costs generate a cyclical price behaviour characterized by long periods without nominal price changes and short periods with very low prices i e sales promotions we estimate this model using a unique longitudinal dataset with information about retail and wholesale prices inventories orders and sales for several brands in a supermarket chain based on the estimated model we perform several counterfactual experi ments that show the important role that inventories and fixed ordering costs play in the dynamics of retail prices and the frequency of sales promotions in this dataset

sticky price models and durable goods the inclusion of a durable goods sector in sticky price models has strong and unexpected implications even if most prices are flexible a small durable goods sector with sticky prices may be sufficient to make aggregate output react to monetary policy as though most prices were sticky in contrast flexibly priced durables with sufficiently long service lives can undo the implications of standard sticky price models in a limiting case flexibly priced durables cause monetary policy to have no effect on aggregate output our analysis suggests that durable goods prices are the most relevant data for calibrating price rigidity jel e21 e23 e31 e52

heterogeneous consumers segmented asset markets and the real effects of monetary policy this paper proposes a novel mechanism by which changes in the distribution of money holdings have real effects specifically i develop a flexible price model of segmented asset markets that generates real aggregate effects of monetary policy through the dependence of optimal markups on the heterogeneity of money holdings because varieties of consumption bundles are purchased sequentially newly injected money disseminates slowly throughout the economy via second round effects the model predicts a short term inflation output trade off a liquidity effect countercyclical markups and procyclical wages after monetary shocks among other correlations of financial variables it also reproduces the empirical negative relationship between changes in the money supply and markups

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

market power and price movements over the business cycle this paper develops and tests implications of an oligopoly pricing model the model predicts that during a demand expansion the short run competitive price is a pure strategy nash equilibrium but in a recession firms set prices above the competitive price thus price markups over the competitive price are countercyclical prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions the empirical analysis utilizes hamilton s time series switching regime filter to test the predictions of the model fourteen out of fifteen industries have fluctuations consistent with this oligopoly pricing model

the limitations of industry concentration measures constructed with compustat data implications for finance research industry concentration measures calculated with compustat data which cover only the public firms in an industry are poor proxies for actual industry concentration these measures have correlations of only 13 with the corresponding u s census measures which are based on all public and private firms in an industry also only when u s census measures are used is there evidence consistent with theoretical predictions that moreconcentrated industries which should be more oligopolistic are populated by larger and fewer firms with higher price cost margins further the significant relations of compustatbased industry concentration measures with the dependent variables of several important prior studies are not obtained when u s census measures are used one of the reasons for this occurrence is that compustat based measures proxy for industry decline overall our results indicate that product markets research that uses compustat based industry concentration measures may lead to incorrect conclusions jel g10 g30 l10 a growing number of studies that consider the effects of product markets on financial economics related phenomena use industry concentration measures calculated with compustat data which cover only the public firms in an industry these studies examine issues related to asset pricing hou and robinson 2006 informed trading tookes 2008 idiosyncratic stock return volatility gaspar and massa 2006 mergers and acquisitions song and walkling 2000 fee and thomas 2004 shahrur 2005 corporate governance defond and park 1999 engel hayes andwang2003 rennie2006 karuna2007 capitalstructure lang and stulz 1992 kaleand shahrur 2007 corporate disclosurepolicy

pricing exit and location decisions of firms evidence on the role of debt and operating efficiency abstract we compare pricing and exit decisions of discounters across the business cycle cities containing high debt and or low efficiency firms display higher prices during non recession years during recessions prices increase in cities with less efficient incumbents but decrease in cities with a mix of high and low debt firms high debt firms are more likely to exit cities with lower prices and high debt exiting firms are more likely to be efficient apparently low debt firms strategically lower prices during recessions to force exit of efficient financially constrained rivals weaker competitors face another cost new entrants locate closer

microfoundations of macroeconomic price adjustment survey evidence from swedish firms this paper presents the results of a survey on price setting behavior conducted on a large random sample of swedish firms the median firm adjusts the price once a year state and time dependent price setting are about equally important the four highest ranked explanations for price rigidity in this study implicit contracts sluggish costs explicit contracts and the kinked demand curve have close correspondents among the top five places in two similar large scale surveys carried out in the uk and the u s the results point to the importance of the long term relations with customers for the rigidity of prices the estimated share of sales that go to regular customers is more than 80

indirect costs of financial distress in durable goods industries the case of auto manufacturers financial distress can disrupt a durable goods producer s provision of complementary goods and services such as warranties spare parts and maintenance this reduces consumers demand for the core product causing indirect costs of financial distress we test this hypothesis in the market for used cars sold at wholesale auctions an increase in a manufacturer s credit default swaps significantly decreases the prices of its cars at auction especially cars with longer expected service lives our estimates imply substantial indirect costs of financial distress for car manufacturers these costs have occasionally even exceeded the tax savings benefits for general motors and ford the author 2013 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the impact of capital structure on advertising competition an empirical study this article examines the interaction between capital structure and advertising competition using a sample of firms that raise significant amounts of capital we find that firms whose financial leverage has decreased as a result of their new funding increase their advertising significantly more than firms whose leverage has increased we also find that these firms industry rivals respond less aggressively with their own advertising when they have more debt in their capital structure overall our results support the view that financial leverage has a dampening effect on the intensity with which a firm chooses to compete in the product market

economic status measures in the health and retirement study variables measuring economic status represent a straightforward but crucial part of round 1 of the health and retirement study hrs in addition to studies focusing directly on the economic well being of this cohort of the population the economic status variables are likely to be inputs into other analyses that focus on retirement and savings behavior on variations in health status on intrafamily transfers and support and on poverty status as a first look at these data this paper has several modest goals to offer a flavor for the major economic status variables on the hrs to indicate some preliminary analysis of the quality of the data and to take a preliminary look at the interrelationships among economic status measures like income and wealth and other important variables such as health status pension rights and health insurance coverage

competition in the economic crisis analysis of procurement auctions we study the effects of the recent economic crisis on firms bidding behavior and markups in sealed bid auctions using data from austrian construction procurements we estimate bidders construction costs within a private value auction model we find that markups of all bids submitted decrease by 1 5 percentage points in the recent economic crisis markups of winning bids decrease by 3 3 percentage points we also find that without the government stimulus package this decrease would have been larger these two pieces of evidence point to pro cyclical markups

costly switching from a status quo abstract we axiomatically characterize a theory of status quo dependent choice where an agent faces switching costs that depend upon both the status quo and the alternative he switches to in a choice problem with a status quo the agent chooses the alternatives that yield the highest utility net of switching cost this generates status quo bias and also allows for a wide range of reference effects we examine the behavior of such agents in prisoner s dilemma pd games in a single pd game switching costs can lead to cooperation however across different pd games it is not anything goes and instead we derive necessary and sufficient conditions for cooperation rates to be consistent with our model we then verify that these conditions are satisfied by charness et al s 2016 experimental data we also perform a similar analysis for other theories such as models of status quo bias magical thinking inequity aversion and fairness and find that these theories make either invalidated or looser predictions

aggregation and stabilization policy in a multi contract economy abstract this paper presents a model of a multi sector economy in which each sector is characterized by a different type of wage or price stickness the various sectors experience the same exogenous shocks and have the same money supply the analysis shows that demand shocks pose no serious problems for stabilization policy in contrast supply shocks may force the policymaker to choose between stability in one sector and stability in another the analysis also shows that the economist as to the economy s underlying structure and obscures the tradeoffs the policymaker must confront in particular a feedback rule chosen on the basis of an aggregate model could be either better or worse than a passive policy

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

fixed costs matter even when the costs are sunk how firms set prices is key to understanding markets standard economics dictates that the fixed costs of a firm should not affect its prices nonetheless it is common practice for firms to raise their prices after a fixed costs increase we show that firms are correct in doing so if two ubiquitous conditions apply i future profits increase in current sales and ii firms are liquidity constrained

collusion under risk aversion and fixed costs we analyze collusion under demand uncertainty by risk averse cartels that care about the utility derived from profits with sufficient risk aversion and non trivial fixed operating costs it becomes difficult for cartels to collusively restrict output both when demand is low and marginal dollars are highly valued and when demand is high and potential defection profits are high output relative to monopoly levels becomes a u shaped function of demand greater risk aversion or higher fixed operating costs make collusion more difficult to support in recessions but easier to support in booms

the effects of real and monetary shocks in a business cycle model with some sticky prices an established characteristic of macroeconomic fluctuations is the strong positive correlation between variations in the money stock and variations in production income and employment at business cycle frequencies this finding has motivated an enormous literature that has studied the effects of monetary policy disturbances on the real economy and in particular the role of money in business cycles several classes of monetary business cycle models have been developed that feature different channels through which monetary policy can have real effects one model that has been used widely is the keynesian model in which monetary shocks can have important effects on allocations because there are nominal rigidities in prices and or wages the keynesian assumption of sticky nominal prices is often motivated by reference to studies that have analyzed the frequency of nominal price changes the broad conclusion that emerges from this literature is that there are a number of goods that have prices that appear to change infrequently for example carlton 1989 has reported slow changes in nominal transactions prices for producers goods even without long term relationships between buyers and sellers and has documented that delivery lags and other product characteristics frequently change before nominal prces change similarly blinder s survey 1991 of firms shows that prices for many goods change only about once per year while this evidence

debt and creative destruction why could subsidizing corporate debt be optimal the existing theoretical literature provides little justification for a corporate debt subsidy we illustrate the welfare benefit of this subsidy and study how the social costs and benefits change with the duration of industry distress in our model two firms engage in socially wasteful competition for survival in a declining industry firms differ on two dimensions exogenous productivity and endogenously chosen amount of debt financing resulting in a two dimensional war of attrition debt financing increases incentives to exit which although costly for the firm is socially beneficial these benefits decline as industry distress shortens our normative model sheds light on why the debt tax subsidy still persists around the world analogously the model can also rationalize a seemingly ad hoc feature of the u s tax system which subsidizes the conflict of interest between debt and equity regarding firm liquidation this paper was accepted by amit seru finance