Working Paper: NBER ID: w24680
Authors: Sara Fisher Ellison; Christopher Snyder; Hongkai Zhang
Abstract: We study price dynamics for computer components sold on a price-comparison website. Our fine-grained data—a year of hourly price data for scores of rival retailers—allow us to estimate a dynamic model of competition, backing out structural estimates of managerial frictions. The estimated frictions are substantial, concentrated in the act of monitoring market conditions rather than entering a new price. We use our model to simulate the counterfactual gains from automated price setting and other managerial changes. Coupled with supporting reduced-form statistical evidence, our analysis provides a window into the process of managerial price setting and the microfoundation of pricing inertia, issues of growing interest in industrial organization and macroeconomics.
Keywords: managerial frictions; price dynamics; structural estimation; online marketplace; sticky prices
JEL Codes: L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monitoring costs elimination (Q52) | price adjustment frequency (E30) |
| price adjustment frequency (E30) | profits (L21) |
| managerial frictions (D22) | pricing inertia (D40) |
| monitoring costs (Q52) | pricing inertia (D40) |
| cost of changing prices (P22) | pricing inertia (D40) |