Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Tuesday, March 17, 2015

Areeda-Turner 'Down Under': Predatory Pricing in Australia Before and after Boral

Deirdre L. Hay, Cornell University - Law School and George Alan Hay, Cornell University - Law School discuss Areeda-Turner 'Down Under': Predatory Pricing in Australia Before and after Boral.

ABSTRACT: In the only predatory pricing case in Australia to reach the High Court, the ideas and recommendations contained in the 1975 Harvard law Review article by Phillip Areeda and Donald Turner were at the heart of the case. That case, the Boral case, decided by the High Court in 2003, raised a number of interesting issues regarding whether and how the test proposed by Areeda and Turner should be employed to deal with price cuts by large firms aimed at competitors. Equally importantly, the case raised some fundamental questions about whether there was a serious “gap” in the Australian equivalent of Section 2 of the Sherman Act - Section 46 of the Competition and Consumer Act 2010, formerly the Trade Practices Act 1974 (TPA) - which made it difficult to challenge predatory conduct. Boral led immediately to some radical changes in the TPA but, even today, more than 10 years after Boral, Australians are still struggling to come up with the right statutory framework to deal with predatory pricing. This paper will describe the Boral case, discuss how the Australian courts, including the High Court, attempted to apply the A-T test to the facts of the case, and survey and comment on the ongoing legislative turmoil brought about by High Court’s decision.

March 17, 2015 | Permalink | Comments (0) | TrackBack (0)

Using the Economics of the Pass Through in Proving Antitrust Injury in Robinson-Patman Cases

Alexei Alexandrov, Consumer Financial Protection Bureau and Sergei Koulayev, CFPB are Using the Economics of the Pass Through in Proving Antitrust Injury in Robinson-Patman Cases.

ABSTRACT: We analyze and summarize the microeconomic theory of pass-through rates. We start by analyzing a monopolist firm in a standard Micro 101 frictionless market, then add more nuances to the model, including, but not limited to oligopolistic competition, menu costs, price points, endogenous quality and package size choices, and consumer search costs, and show how each of these factors affects pass-through rates.

March 17, 2015 | Permalink | Comments (0) | TrackBack (0)

Monday, March 16, 2015

March 31 Heritage Foundation Speech by FTC Commissioner Ohlhausen on U.S. Supreme Court’s North Carolina Dental Decision

Does Antitrust Trump State Regulation? - The Supreme Court’s North Carolina Dental Decision

In its February 25 North Carolina Dental v. Federal Trade Commission decision, the Supreme Court held that a state regulatory board that is controlled by market participants in the industry being regulated cannot invoke “state action” antitrust immunity unless it is “actively supervised” by the state.  Will this decision discourage harmful protectionist regulation, such as the prohibition on tooth whitening by non-dentists at issue in this case?  Will it also interfere with the ability of states to shape their regulatory programs as they see fit?  A U.S. Federal Trade Commissioner and two expert commentators will address this important set of questions.

More About the Speakers

Remarks by The Honorable Maureen K. Ohlhausen Commissioner, Federal Trade Commission

With Commentaries from Clark Neily, Esq. Senior Attorney, Institute for Justice

Misha Tseytlin General Counsel, Office of the Attorney General of West Virginia

March 16, 2015 | Permalink | Comments (0) | TrackBack (0)

Competition, Markups and Predictable Returns

Alexandre Corhay, University of British Columbia (UBC) - Sauder School of Business, Howard Kung, London Business School, and Lukas Schmid, Duke University - The Fuqua School of Business analyze Competition, Markups and Predictable Returns.

ABSTRACT: Imperfect competition is a significant source of time-varying risk premia in asset markets. We embed a structural IO setup of imperfectly competitive industries into a general equilibrium production-based asset pricing model with recursive preferences. Movements in profit opportunities affect business formation and industry composition, and hence firms' competitive environment. We find that endogenous variation in industry concentration and competitive pressure amplifies and propagates macroeconomic risk asymmetrically. Endogenous countercyclical markups slow down demand and recoveries during downturns while procyclical profits render financial assets risky. The model predicts a sizeable and endogenously countercyclical equity premium which is forecastable with measures of markups and the intensity of new firm creation (entry), and a U-shaped term structure of equity returns. We find strong empirical support for these predictions in the data.

March 16, 2015 | Permalink | Comments (0) | TrackBack (0)

Merger Control and the Public Interest: Balancing EU and National Law in the Protectionist Debate

Alison Jones, King's College London – The Dickson Poon School of Law and John Davies, Freshfields Bruckhaus Deringer LLP explore Merger Control and the Public Interest: Balancing EU and National Law in the Protectionist Debate.

ABSTRACT: In many jurisdictions across the world concern about foreign control of key national businesses appears to be mounting. This article examines the policies displayed towards foreign direct investment and cross-border mergers in the EU, focusing on the question of when public policy factors may impact on merger control within the EU and override competition law assessments. The article notes that not only do EU cases in this area raise the potential for differences in opinion as to how the benefits and costs of merger transactions should be assessed and weighed, and a clash between proponents of the principle of an open market economy and proponents of greater protectionism, but they raise delicate issues relating to the balance of competence between the EU and the Member States. Consequently, it analyses (i) how EU law, especially the free movement rules and the EUMR limit the ability of the Member States either to impose obstacles in the path of foreign mergers (whether from inside or outside of the EU/EEA) or to authorise the creation of national champions, on public interest grounds and (ii) how EU law seeks to balance EU goals against the acutely felt and sensitive national interests at stake. Given concerns expressed about a rising tide of protectionism within the EU, it also examines EU enforcement mechanisms. ​

The article concludes that although EU law clearly prohibits national laws that impose unjustified obstacles in the path of investment from other EU Member States, it may not always be able to prevent the authorisation of national champions which may damage competition within the EU and that changes to the EU merger rules would be required to deal with this latter problem. Further, the extent to which Member States are able to control investments from third countries (outside of the EU/EEA) is extremely sensitive, controversial and requires clarification. It also notes that although some problems do lie in preventing Member States from taking protectionist steps and violating fundamental provisions of EU law, enforcement mechanisms are in place which can help to ensure the effectiveness of EU law.

March 16, 2015 | Permalink | Comments (0) | TrackBack (0)

Registered Cartels in Austria – Coding Protocol

Nikolaus Fink, Johannes Kepler University, Philipp Schmidt-Dengler, University of Vienna - Faculty of Business, Economics, and Statistics, Konrad O. Stahl, University of Mannheim - Department of Economics; Centre for Economic Policy Research (CEPR), and Christine Zulehner, Johannes Kepler University Linz; Austrian Institute of Economic Research (WIFO) discuss Registered Cartels in Austria – Coding Protocol.

ABSTRACT: In the period following WW II until the country accessed the European Union, cartels were legalized in Austria, upon registration with the Austrian Cartel Court. We obtained access to the registration data, and scanned them all towards a microeconomic analysis of contracting behavior between firms competing, in principle, in their respective markets. In this paper, we give a detailed account of our procedure of coding the data from the scanned documents.


March 16, 2015 | Permalink | Comments (0) | TrackBack (0)

The effect of code-share agreements on the temporal profile of airline fares

Marco Alderighi (Universita della Valle d’Aosta, The Rimini Centre for Economic Analysis, Italy), Alberto A. Gaggero (Department of Economics and Management, University of Pavia, Italy), and
Claudio A. Piga (Keele Management School, United Kingdom, The Rimini Centre for Economic Analysis, Italy) discuss The effect of code-share agreements on the temporal profile of airline fares.

ABSTRACT: This paper aims at investigating how the pricing strategy of European airline carriers is affected by code-share agreements on international routes. Our data cover several routes linking the main UK airports to largest European destinations and includes posted fares collected at different days before departure. By analyzing the temporal profile of airline fares, we identify three main results. First, code-share increases fares especially for early bookers. Second, the higher prices in code-shared flights are offered by marketing carriers. Finally, when flights are in unilateral code-share, the pricing profile is flatter than under parall! el code-share.

March 16, 2015 | Permalink | Comments (0) | TrackBack (0)

Friday, March 13, 2015

Price Dynamics with Customer Markets

Paciello, Luigi (Einaudi Institute for Economics and Finance), Pozzi, Andrea (Einaudi Institute for Economics and Finance) and Trachter, Nicholas (Federal Reserve Bank of Richmond) study Price Dynamics with Customer Markets.

ABSTRACT: We study a tractable model of firm price setting with customer markets and empirically evaluate its predictions. Our framework captures the dynamics of customers in response to a change in the price, describes the behavior of optimal prices in the presence of customer acquisition and retention concerns, and delivers a general equilibrium model of price and customer dynamics. We exploit novel micro data on purchases from a panel of households from a large U.S. retailer to quantify the model and compare it to the counterfactual benchmark of the standard monopolistic competition setting. We show that a model with customer markets has markedly different implications in terms of the equilibriu! m price distribution, which better fit the available empirical evidence on retail prices. Moreover, the dynamic of the response of demand to shocks that affects price dispersion is also distinctive. Our results suggest that inertia in customer reallocation across firms increases the persistence in the response of demand to these shocks.

March 13, 2015 | Permalink | Comments (0) | TrackBack (0)

OECD is recruiting Experts in Competition Law and Policy: Paris and Mexico

OECD is recruiting Experts in Competition Law and Policy: Paris and Mexico
The OECD’s Competition Division is seeking several experts – economists or lawyers – with substantial experience in the application of competition laws and in competition policy applied to regulations. The successful candidates will work on various projects to support the development of sound competition and regulatory policy in member and non-member countries. They will participate in research, analysis and drafting of OECD reports on topics related to competition and regulatory policies for consideration by the OECD’s Competition Committee. They will also contribute to the review of national competition laws and policies and the preparation of recommendations to improve competition law and policy. More details can be found at At least two positions will be based at the Paris headquarters and one in Mexico.
The OECD’s mission– Better Policies for Better Lives – is to promote policies that will improve the economic and social well-being of people around the world. The Organisation provides a unique forum in which governments work together to share experiences on what drives economic, social and environmental change, seeking solutions to common problems. In line with the strategic objectives of the Secretary-General, the core mission of the OECD’s Directorate for Financial and Enterprise Affairs is to build open and efficient markets and market institutions, combat market abuse and corruption, and promote international co-operation.

March 13, 2015 | Permalink | Comments (0) | TrackBack (0)

Auction Mechanisms and Bidder Collusion: Bribes, Signals and Selection

Aniol Llorente-Saguer (Queen Mary University of London) and Ro’i Zultan (Ben-Gurion University) identify Auction Mechanisms and Bidder Collusion: Bribes, Signals and Selection.

ABSTRACT: The theoretical literature on collusion in auctions suggests that the first-price mechanism can deter the formation of bidding rings. In equilibrium, collusive negotiations are either successful or are avoided altogether, hence such analysis neglects the effects of failed collusion attempts. In such contingencies, information revealed in the negotiation process is likely to affect the bidding behavior in first-price (but not second-price) auctions. We test experimentally a setup in which collusion is possible, but negotiations often break down and information is revealed in an asymmetric way. The existing theoretical analysis of our setup predicts that the first-price mechanism deters collusion. In contrast, we find the same level of collusion in first-price and second-price auctions. Furthermore, failed collusion attempts distort the bidding behavior in the ensuing auction, leading to loss of efficiency and eliminating the revenue dominance typically observed in firstprice auctions.

March 13, 2015 | Permalink | Comments (0) | TrackBack (0)

Downstream Market Power and the Lerner Index

Ioannis Pinopoulos (Department of Economics, University of Macedonia, Greece) explores Downstream Market Power and the Lerner Index.

ABSTRACT: A well-known result in oligopoly theory regarding one-tier industries is that the equilibrium mark-up and the Lerner index decreases with the number of firms. In other words, market power is diminished when more firms are present in the market. In the present paper, we consider a two-tier industry and focus on the behaviour of the equilibrium mark-up and Lerner index in the downstream market with respect to a change in the number of downstream ?rms. In a very general setting, without specific demand functions for final goods and vertical relations between upstream and downstream firms, we derive conditions under which the equilibrium downstream mark-up and Lerner index may increase with the number of downstream firms. Moreover, we show that, in contrast to the case of one-tier industries, the equilibrium mark-up and Lerner index in the downstream market can move to opposite directions as a result of a! n increase in the number of downstream firms. We also provide a specific example by considering a successive Cournot oligopoly model where firms freely enter into the upstream market.

March 13, 2015 | Permalink | Comments (0) | TrackBack (0)

Thursday, March 12, 2015

Quality Pricing-to-Market

Raphael Auer, Swiss National Bank, Thomas Chaney, Toulouse School of Economics; University of Chicago - Department of Economics; Centre for Economic Policy Research (CEPR) and Philip U. Saure, Swiss National Bank - International Research and Technical Assistance Division explore Quality Pricing-to-Market.

ABSTRACT: We examine firm's pricing-to-market decisions in vertically differentiated industries featuring a large number of firms that compete monopolistically in the quality space. Firms sell goods of heterogeneous quality to consumers with non-homothetic preferences that differ in their income and thus their marginal willingness to pay for quality increments. We derive closed-form solutions for the pricing game under costly international trade, thus establishing existence and uniqueness. We then examine how the interaction of good quality and market demand for quality affects firms' pricing-to-market decisions. The relative price of high quality goods compared to that of low quality goods is an increasing function of the income in the! destination market. When relative costs change, the rate of exchange rate pass-through is decreasing in quality in high income countries, yet increasing in quality in low-income countries. We then document that these predictions receive empirical support in a dataset of prices and quality in the European car industry.

March 12, 2015 | Permalink | Comments (0) | TrackBack (0)

Toward a theory of monopolistic competition

Philip Ushchev, Mathieu Parenti, and Jacques-Francois Thisse move Toward a theory of monopolistic competition.

ABSTRACT: We propose a general model of monopolistic competition, which encompasses existing models while being flexible enough to take into account new demand and competition features. Using the concept of Frechet differentiability, we determine a general demand system. The basic tool we use to study the market outcome is the elasticity of substitution at a symmetric consumption pattern, which depends on both the per capita consumption and the total mass of varieties. We impose intuitive conditions on this function to guarantee the existence and uniqueness of a free-entry equilibrium. Our model is able to mimic oligopolistic behavior and to replicate partial equilibrium results within a general equilibrium framework. For example, an increase in per capita income or in population size shifts prices (outputs) downwards (upwards). When firms face the same productivity shock, they adopt an incomplete pass-through policy, except when preferences are homothetic. Finally, we show how our approach can be generalized to the case of a multisector economy and extended to cope with heterogeneous firms and consumers.

March 12, 2015 | Permalink | Comments (0) | TrackBack (0)


Jovica Markovic, Jovana Mutibaric, and Marko Caric (University Business Academy in Novi Sad, Faculty of Economics and Engineering Management, Novi Sad) reconsider SUSTAINABILITY OF MONOPOLISTIC COMPETITION DURING THE GLOBAL ECONOMIC CRISIS AND REINDUSTRIALIZATION.

ABSTRACT: Until the early 1920s, the classical theory of price included two main models, perfect competition and monopoly. However, E. Chamberlin and J. Robinson introduced a new theory of monopolistic competition in 1933. At the time of global economic crisis, when only the most powerful companies survive, the model of monopolistic competition is hardly sustainable. In fact, the most widespread market model in highly developed world economies has been replaced by monopoly. Supply reduction due to the bankruptcy of many companies, combined with demand decline as a result of the austerity measures, and on the other hand growing need for higher budget inflows, lead to the price hikes in all industries. All mentioned result lead to an extreme market model – the monopoly; even in countries that were known as market economies and by its monopolistic competition. Furthermore, it is well known that employment level is lower in economies that are not competitive. That fact additionally contributes to conclusion that the sustainability of the monopolistic competition is almost impossible during the crisis, considering that we have witnessed high unemployment rates in some EU countries (e.g. Spain, Greece, Italy, Portugal and Ireland). The subject of this paper is to explore sustainability of the market model of monopolistic competition in conditions of the global economic crisis, transitional economies and the reform, under which is a public sector of the Republic of Serbia. The aim of the paper is to determine are there any opportunities for the survival of the mentioned market model in terms of re-industrialization, which is inevitable companion of globalization.

March 12, 2015 | Permalink | Comments (0) | TrackBack (0)

On the economics of labels: how their introduction affects the functioning of markets and the welfare of all participants

Olivier Bonroy (Economie Appliquée de Grenoble, INRA) and Christos Constantatos (Department of Economics, University of Macedonia) have written On the economics of labels: how their introduction affects the functioning of markets and the welfare of all participants.

ABSTRACT: Are labels good or bad for consumers and firms? The answer may seem straightforward since labels improve information, yet economic theory reveals situations where their introduction reduces the welfare of at least some market participants. This essay reviews the theoretical literature on labels in order to identify and explain the main reasons that may cause labeling to produce undesirable side-effects. In contrast to earlier reviews that either concentrate on narrow topics or treat the subject in a more or less informal way, we bring together the main results from all the relevant topics by presenting and discussing the assumptions and model-building techniques that ! underpin them. The advantage of this approach is that it identifies the origin of the differences between results, thus allowing the synthesis of results that sometimes appear even to be contradictory. We focus on quality labels and examine the impact of labeling on market structure, the side-effects of costly certification, issues related to the label's trustworthiness, the rationale for mandatory vs. voluntary labeling, the level at which the label's standard is set according to the agency that selects it, the political economy of labels, that is, pro- or anti-label lobbying, lobbying to affect the label's standard, and lobbying in favor or against the label's mandatory imposition. These topics cover a wide range of applications, including Genetically Modified Organism (GMOs), organic produce, geographic indicators, controlled origin, eco-labels, etc. We conclude by identifying topics that require further research.

March 12, 2015 | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 11, 2015

Searle Center Public Policy Conference on Disruptive Technologies and Over-the-Top Services Monday, April 27, 2015

Searle Center Public Policy Conference on
Disruptive Technologies and Over-the-Top Services
Monday, April 27, 2015
The National Press Club
529 14th Street, NW
Washington, DC 20045
The Searle Center on Law, Regulation, and Economic Growth at Northwestern Law presents a Public Policy Conference on Disruptive Technologies and Over-the-Top Services to be held at the National Press Club in Washington, DC on Monday, April 27, 2015.  The one day conference will run from 9:00 A.M. to approximately 3:00 P.M.
This conference is organized by Matthew L. Spitzer, Howard and Elizabeth Chapman Professor of Law and Director of the Searle Center on Law, Regulation, and Economic Growth at Northwestern University School of Law.
The goal of this conference is to provide a forum for economists, legal scholars, industry reps, and government regulators to engage in panel discussions on the issues surrounding the delivery of video entertainment and VOIP via over-the-top services.
Topics that will be explored include:
  • Existing and future regulatory structures for ISPs, cable companies, and over-the-top services.
  • Vertical integration with entertainment studios
  • FCC Notice of Proposed Rulemaking: OTT video providers as multichannel video programming distributors (MVPDs)
  • Mismatch with Legacy Regulatory, Antitrust and Taxation Systems
  • Privacy
Monday, April 27th
9:00 a.m.         Registration and Breakfast (The First Amendment Lounge)
10:00               Introduction on Disruptive Technologies
                        Matthew L. Spitzer, Director, Searle Center on Law, Regulation, and Economic
                        Growth and Howard and Elizabeth Chapman Professor, Northwestern University
                        School of Law
10:15               Session One— OTT in VOIP (Holeman Lounge)                              
Moderator: Simon Wilkie, Professor of Economics, Communication and Law, USC Gould School of Law, and Microsoft Corporation
Daniel Pataki, Director, ETNO (Europrean Telecommunications Network Operators' Association)
Patrick Rey, Professor of Economics, University Toulouse I Capitole (UT1C), Toulouse School of Economics
                        Robert W. Quinn, Jr., Senior Vice PresidentFederal Regulatory and Chief Privacy Officer, AT&T Services, Inc.
12:00 p.m.       Lunch and Keynote Address TBD (The First Amendment Lounge)*
1:30                 Session Two—OTT in Video Entertainment (Holeman Lounge)
Moderator: James B. Speta, Class of 1940 Research Professor of Law, Northwestern University School of Law
                        Hon.Stephen Conroy, Deputy Leader of the Opposition in the Senate, Parliament of Australia
Barbara Motzney, Chief Consumer Officer and Executive Director, Consumer Affairs and Strategic Policy Sector, Canadian Radio-television and Telecommunications Commission (CRTC)
                        Corie Wright, Director of Global Public Policy, Netflix Inc.
                        Jonathan Baker, Professor of Law, American University Washington College of Law
2:45                 Adjourn
*Please note that we will be able to announce our keynote speaker in the coming days.
Attendance for this conference is by invitation only.  To receive an invitation, please send a message with your name, affiliation, and full contact information to:
The Searle Center will also be able to provide funding for travel and hotel accommodations for a limited number of academics who are interested in attending the conference.  If you would like to request travel assistance please include a copy of your CV as well as a brief statement (1-2 sentences) outlining your academic interest in this area.
The Searle Center on Law, Regulation, and Economic Growth at Northwestern University School of Law was established in 2006 to research how government regulation and interpretation of laws and regulations by the courts affect business and economic growth. Information on the Searle Center’s activities may be found at:

March 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Dynamic Spatial Competition between Multi-Store Firms

Victor Aguirregabiria, University of Toronto - Department of Economics and Gustavo Vicentini, Analysis Group, Inc. describe Dynamic Spatial Competition between Multi-Store Firms.

ABSTRACT: We propose a dynamic model of an oligopoly industry characterized by spatial competition between multi-store retailers. Firms compete in prices and decide where to open or close stores depending on demand conditions and the number of competitors at different locations, and on location-specific private-information shocks. We develop an algorithm to approximate a Markov Perfect Equilibrium in our model, and propose a procedure for the estimation of the parameters of the model using panel data on number of stores, prices, and quantities at multiple geographic locations within a city. We also present numerical examples to illustrate the model and algorithm.

March 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Prescribing Behavior of General Practitioners : Competition Matters!

C.B.C. Schaumans (Tilburg University, TILEC) argues Prescribing Behavior of General Practitioners : Competition Matters!

ABSTRACT: Background: General Practitioners have limited means to compete. As quality is hard to observe by patients, GPs have incentives to signal quality by using instruments patients perceive as quality. Objectives: We investigate whether GPs exhibit different prescribing behavior (volume and value of prescriptions) when confronted with more competition. As there is no monetary benefit in doing so, this type of (perceived) quality competition originates from GPs satisfying patients’ expectations. Method: We look at market level data on per capita and per contact number of items prescribed by GPs and the value of prescriptions for the Belgian market of General Practitioners. We test to which extent different types of variables explain the observed variation. We consider patient characteristics, GP characteristics, number and type of GP contacts and the level of competition. The level of competition is measured by GP density, after controlling for the number of GPs and a HHI. Results: We find that a higher number of GPs per capita results in a higher number of units prescribed by GPs, both per capita and per contact. We argue that this is consistent with quality competition in the GP market. Our findings reject alternative explanations of GP scarcity, availability effect in GP care consumption and GP dispersing prescri! ption in time due to competition.

March 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Licensing to vertically related markets

Eva-Maria SCHOLZ (Universite catholique de Louvain, CORE, Belgium) examines Licensing to vertically related markets.

ABSTRACT: We analyse the problem of a non-producing patentee who licenses an essential process innovation to a vertical Cournot oligopoly. The vertical oligopoly is composed of an upstream and a downstream sector which may differ in their efficiency or, in other words, in the benefit they derive from the innovation. In this framework we characterise the optimal licensing contract in terms of the licensing revenue maximising policy (fixed-fee or per-unit royalty) and sector (upstream and/or downstream sector). First, it is shown that under a fixed-fee contract licensing to the less efficient industry sector may be the patentee’s licensing revenue maximising strategy. Here, licensing to a less efficient downstream market is all the time optimal in terms of consumer surplus and aggregate economic welfare. Conversely, licensing to a less or equally efficient upstream industry is potentially inefficient. Second, our findings reveal that the optimal licensing policy is sector dependent. A per-unit royalty contract may dominate a fixed-fee policy on the downstream market in terms of licensing revenues, while offering a per-unit royalty contract to the upstream industry is never optimal. As a third and final point we address the case of licensing! to both industry sectors. Here we also identify conditions under which! two-sector licensing of both sectors is less profitable than one-sector licensing of a single industry (and vice versa).

March 11, 2015 | Permalink | Comments (0) | TrackBack (0)

Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity

Daniel Levy, Department of Economics, Bar-Ilan University, Avichai Snir Department of Banking and Finance, Netanya Academic College, Alex Gotler, Department of Education and Psychology, Open University and Haipeng (Allan) Chen, Mays Business School, Texas A&M University discuss Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity.

ABSTRACT: Using data from three sources (a laboratory experiment, a field study, and a large US supermarket chain), we document a surprising asymmetric behavior of 9-ending prices: they are more rigid upward, but not downward, in comparison to non 9-ending prices. The data from the lab experiment and the field study suggest that shoppers are less likely to notice higher prices when they end with 9, or price increases when the new prices end with 9, in comparison to other endings. The consumers' misperception seems to be caused by their use of 9-endings as a signal for low prices, which interferes with price information processing. The supermarket data suggest that retail price setters respond strategically to the consumer misperception by setting 9-ending prices more often after price increases than after price decreases. 9-ending prices, therefore, usually increase only if the new prices are also 9-ending. Consequently, 9-ending prices exhibit asymmetric rigidity: they are more rigid than non 9-ending prices upward but not downward.

March 11, 2015 | Permalink | Comments (0) | TrackBack (0)