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Asymmetric price adjustments: A supply side approach

Fabio Antoniou (), Raffaele Fiocco () and Dongyu Guo

International Journal of Industrial Organization, 2017, vol. 50, issue C, 335-360

Abstract: Using a model of dynamic price competition, we provide an explanation from the supply side for the well-established observation that output prices react faster in response to input cost increases than to decreases. When costs decline, the opportunity of profitable storing in anticipation of higher future costs allows competitive firms to coordinate on prices above current marginal costs. The initial price response is only partial and profitable storing relaxes competition. Conversely, when costs rise, storing is not beneficial in anticipation of lower future costs and firms immediately adjust their prices to current marginal costs, which entails the standard Bertrand outcome. Our results shed new light on the empirical evidence about asymmetric pricing and can stimulate further empirical investigation on this puzzle.

Keywords: Asymmetric price adjustments; Bertrand–Edgeworth competition; Storage; Gasoline market (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2017
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