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The Flood that Caused a Drought

Alex Nikolsko-Rzhevskyy, Oleksandr Talavera and Nam Vu ()
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Alex Nikolsko-Rzhevskyy: Lehigh University

Discussion Papers from Department of Economics, University of Birmingham

Abstract: This paper uses a unique dataset to study the effects of an exogenous supply shock on product availability, prices, and price setting behavior. Our analysis explores a natural experiment involving the 2011 flood in Thailand, which affected the production facilities of Western Digital (WD), the world’s largest hard-drive producer. This foreign-born natural disaster affected the inventory of hard drives in the U.S., which availability declined by more than 40%. Our findings suggest that prices of WD and non-WD hard disk drives (HDD) increased as much as 38% and 14%, respectively, within six months following this exogenous supply shock. However, pricing of solid-state drives (SSD), the closest substitute for HDD products, experienced a much weaker response. Furthermore, there is little evidence of any changes in the price-setting of final goods (desktops and laptops) or complementary components (processors and motherboards). This suggests that the shock transmission is likely to be absorbed in production networks.

Keywords: supply shock; inventory; price stickiness; hard drive; natural disaster (search for similar items in EconPapers)
JEL-codes: E31 L11 L81 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2020-06
New Economics Papers: this item is included in nep-com and nep-sea
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