2013-08-16 papers

on Industrial Organization

Issue of 2013‒08‒16
two papers chosen by

Waiting For Signalling Quality By Hikmet Gunay
Structural Estimation of Price Adjustment Costs in the European Car Market By Carlos Noton

By:	Hikmet Gunay
Abstract:	When a durable good of uncertain quality is introduced to the market, some consumers strategically delay their buying to the next period with the hope of learning the unknown quality. We analyze the monopolist's pricing and "waiting" strategies when consumers have strategic delay incentives. We show when the monopolist offers introductory low prices in pooling equilibria. We also find two types of separating equilibria: one where high type signals its quality by choosing a different price than the low type in the first period, and another where the high-type monopolist announces the product in the first period and waits to sell only in the second period. Waiting creates a credible cost for signalling; hence, the monopolist uses it as a signalling device.
Date:	2013–07
URL:	http://d.repec.org/n?u=RePEc:dpr:wpaper:0877&r=ind

Structural Estimation of Price Adjustment Costs in the European Car Market

By:	Carlos Noton
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
URL:	http://d.repec.org/n?u=RePEc:edj:ceauch:303&r=ind

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