Structural Estimation of Price Adjustment Costs in the European Car Market

Carlos Noton

No 303, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: This paper characterizes the price adjustment costs that are consistent with observed price dynamics in the European car market. Using the methodology developed by Bajari, Benkard, and Levin (2007), I estimate a dynamic model of international multiproduct firms that set prices in different currencies while facing price adjustment costs. There are three main results. First, the incomplete degree of exchange rate pass-through can be explained by a sizable destination-currency cost component. Second, large price adjustment costs are not needed to rationalize the large degree of price inertia in a highly autocorrelated economic environment. In fact, small adjustment costs can rationalize the persistent prices observed. Third, the paper identi.es an unexplored temporal dimension of "pricing-to-market" behavior, that is the practice of setting prices differently across segmented markets. Estimates of the price adjustment cost suggest that a uniform cost structure is not consistent with the pricing behavior observed.

Date: 2013
New Economics Papers: this item is included in nep-com, nep-eur, nep-ind, nep-spo and nep-tre
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Related works:
Journal Article: Structural estimation of price adjustment costs in the European car market (2016)
Working Paper: Structural Estimation of Price Adjustment Costs in the European Car Market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:303

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