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Inventory Shock and Price-Setting

Oleksandr Talavera and Nam Vu ()

Discussion Papers from Department of Economics, University of Birmingham

Abstract: This paper studies the impact of inventory shock on price-setting behaviour. Our analysis exploits a natural experiment involving the 2011 Thailand flood, which affected the production facilities of Western Digital (WD), the world's largest hard drive producer. This natural disaster shock affected inventory and product availability - and, consequently, the pricing for U.S. hard drive sellers. The prices of WD and non-WD hard disk drives (HDD) increased within one month after the shock. Pricing of solid-state drives (SSD), the closest substitute for HDD products, was also affected, though with smaller responses. However, there is little evidence of changes in the price-setting of final goods (desktops or laptops) or complementary components (processors or motherboards). This suggests that the shock transmission is delayed and/or absorbed in production networks.

Keywords: supply shock; inventory; price stickiness; hard drive; natural disaster (search for similar items in EconPapers)
JEL-codes: G30 J10 J33 (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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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:20-14

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