The response of prices, sales, and output to temporary changes in demand

Adam Copeland and George Hall

Journal of Applied Econometrics, 2011, vol. 26, issue 2, 232-269

Abstract: We determine empirically how automakers accommodate shocks to demand. Using data on production, sales, and transaction prices, we estimate a dynamic profit maximization model of the firm. We demonstrate that when an automaker is hit with a vehicle-specific demand shock, sales respond immediately and prices respond very modestly. Further, when accounting for non‐convexities in the cost function, production responds with a delay. Over time, shocks are absorbed almost entirely through adjustments in sales and production rather than prices. We examine two recent demand shocks: the Ford Explorer/Firestone tire recall of 2000, and the 11 September 2001 terrorist attacks. Copyright (C) 2009 John Wiley & Sons, Ltd.

Date: 2011
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http://hdl.handle.net/10.1002/jae.1120

Related works:
Working Paper: The Response of Prices, Sales, and Output to Temporary Changes in Demand (2006)
Working Paper: The Response of Prices, Sales, and Output to Temporary Changes in Demand (2005)
Working Paper: The Response of Prices, Sales, and Output to Temporary Changes in Demand (2005)
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