Search Results
Showing results 1 to 10 of approximately 25.
(refine search)
Journal Article
The Big Mac: a global-to-local look at pricing
The global, national, regional and local factors that shape price-setting behavior are complex, even for a relatively simple product that's neither easily tradable nor wholly nontradable.
Working Paper
Can standard preferences explain the prices of out-of-the-money S&P 500 put options?
The 1987 stock market crash occurred with minimal impact on observable economic variables (e.g., consumption), yet dramatically and permanently changed the shape of the implied volatility curve for equity index options. Here, we propose a general equilibrium model that captures many salient features of the U.S. equity and options markets before, during, and after the crash. The representative agent is endowed with Epstein-Zin preferences and the aggregate dividend and consumption processes are driven by a persistent stochastic growth variable that can jump. In reaction to a market crash, the ...
Working Paper
Deliverability and regional pricing in U.S. natural gas markets
During the 1980s and early '90s, interstate natural gas markets in the United States made a transition away from the regulation that characterized the previous three decades. With abundant supplies and plentiful pipeline capacity, a new order emerged in which freer markets and arbitrage closely linked natural gas price movements throughout the country. After the mid-1990s, however, U.S. natural gas markets tightened and some pipelines were pushed to capacity. We look for the pricing effects of limited arbitrage through causality testing between prices at nodes on the U.S. natural gas ...
Working Paper
Price setting in a leading Swiss online supermarket
We study a newly released data set of scanner prices for food products in a large Swiss online supermarket. We find that average prices change about every two months, but when we exclude temporary sales, prices are extremely sticky, changing on average once every three years. Non-sale price behavior is broadly consistent with menu cost models of sticky prices. When we focus specifically on the behavior of sale prices, however, we find that the characteristics of price adjustment seems to be substantially at odds with standard theory.
Working Paper
Income differences and prices of tradables
This paper presents novel evidence of price discrimination, using prices of identical goods in 28 countries. I explain the observed phenomenon via non-homothetic preferences, in a model of trade with product differentiation and firm productivity heterogeneity. The model brings theory and data closer along a key dimension: it generates positively related prices of tradables and income, while preserving exporter behavior and trade flows of existing frameworks. It further captures observations that richer countries buy more per product and consume more diverse bundles. Quantitatively, the model ...
Working Paper
Exchange-rate pass-through in the G-7 countries
This paper examines the current thinking on exchange-rate pass-through to both import prices and consumer prices and estimates the extent to which they have fallen in the G-7 countries since the late 1970s and 1980s. For import-price pass-through we find that all countries experience a numerical decline in the responsiveness of import prices to exchange-rate movements; for nearly half of these countries the decline between 1975-1989 and 1990-2004 is statistically significant. We estimate that while a 10 percent depreciation in the local currency would have increased import prices by nearly 7 ...
Working Paper
Reconciling Full-Cost and Marginal-Cost Pricing
Despite the clear prescription from economic theory that a firm should set price based only on variable costs, firms routinely factor fixed costs into pricing decisions. We show that full-cost pricing (FCP) can help firms uncover their optimal price from economic theory. FCP marks up variable cost with the contribution margin per unit, which in equilibrium includes the fixed cost. This requires some knowledge of the firm's equilibrium return, though this is arguably easier a lower informational burden than knowing one's demand curve, which is required for optimal economic pricing. We ...
Working Paper
Teams of rivals: endogenous markups in a Ricardian world
We show that an ostensibly disparate set of stylized facts regarding firm pricing behavior can arise in a Ricardian model with Bertrand competition. Generalizing the Bernard, Eaton, Jenson, and Kortum (2003) model allows firms' markups over marginal cost to fall under trade liberalization, but increase with FDI, matching empirical studies in international trade. We are able to mesh this dichotomy with the existence of pricing-to-market and imperfect pass-through, as well as to capture stylized facts regarding the frequency and synchronization of price adjustment across markets. The result is ...
Working Paper
Public and private values
This paper experimentally examines whether looking at other people's pricing decisions is a type of heuristic - a decisionmaking rule - that people use even when it is not applicable, as in the case of clearly private value goods. We find evidence that this is indeed the case - an individual's valuation of a purely subjective experience under full information, elicited using an incentive compatible mechanism, is highly influence by valuations made by others. This result can shed light on price behavior, price rigidities, and rents.