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DTSTART;TZID=Europe/Helsinki:20191202T124500
DTEND;TZID=Europe/Helsinki:20191202T140000
DTSTAMP:20260410T161121
CREATED:20190912T073701Z
LAST-MODIFIED:20191202T095639Z
UID:3342-1575290700-1575295200@economics.uc3m.es
SUMMARY:Implications of Consumer Loyalty for Price Dynamics when Price Adjustment is Costly
DESCRIPTION:  \nMateusz Mysliwski.\n(NHH).\n\nImplications of Consumer Loyalty for Price Dynamics when Price Adjustment is Costly.\nAbstract:\nWe study the implications of consumer switching costs on prices when price adjustments are costly. Existing theoretical and empirical works on consumer switching costs assume firms can change prices freely without any supply side frictions. We develop a dynamic game-theoretic model in which consumers exhibit inertia in their choices and firms compete in prices while facing costly price adjustments. We use the model to analyse the UK butter and margarine industry and estimate it with a rich scanner data set. The adjustment costs in our model can be interpreted as promotional fees which dairy suppliers pay to supermarkets. We find that price adjustment costs are substantial and represent between 24-34% of manufacturers’ net margins. We show that ignoring price adjustment costs can lead to substantial underprediction of the effects of consumer switching costs on prices. Our model predicts that the removal of promotional fees reduces firm costs and increases their profits without passing down benefits to the consumers.\n\nAttendance confirmation.
URL:https://economics.uc3m.es/event/tba-138/
CATEGORIES:A&E seminar
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