Pricing
Paper Session
Sunday, Jan. 7, 2024 1:00 PM - 3:00 PM (CST)
- Chair: Hayri Arslan, University of Texas-San Antonio
Energy Prices and Inflation Expectations: Evidence from Households and Firms
Abstract
I investigate how households and firms adjust their inflation expectations when experiencing an energy price shock. Using monthly panel survey data and a difference-in-difference approach, I show that households increase their inflation expectations when they experience an increase in their personal electricity prices. This result is in line with households extrapolating their personal experience. As a result, their inflation forecasts become less accurate and diverge more from professional forecasts. By contrast, firms expect to shift part of the energy price hike to their own prices, but they do not extrapolate it to their inflation expectations. I find evidence that information frictions can explain the different behavior of households and firms.Information and Pricing in Search Markets
Abstract
This paper studies a competition model with search frictions that combines a general information design problem with endogenous pricing. It includes a mix of savvy consumers with zero search costs and inexperienced consumers with strictly positive search costs. The presence of inexperienced consumers reduces equilibrium information provision, but this provision is non-monotonic in the search cost. Very low and high search costs result in full disclosure while intermediate search costs result in strategic information withholding tailored toward capturing the inexperienced consumers. The flexible information provision has a spillover effect on the equilibrium price and may allow firms to sustain a higher market price relative to the full information benchmark.Underpricing and Perceived Scarcity
Abstract
We analyze why firms might set prices below the market equilibrium levels and thereby create excess demand and a perception of scarcity. Although such a pricing strategy translates into lower profits in the short run, if the perception of scarcity is a demand shifter, it can result in higher cumulative profits over time. We expound on theoretical insights provided by the model through an empirical application based on data from the market for cult wines. We implement a two-way fixed effects regression model. We find that the larger the difference between the primary and secondary market prices, the higher the market price will be for the next vintage of the same wine in the following year, consistent with a scarcity-pricing strategy.Price Frame, Obfuscation and Strategic Co-opetition
Abstract
Two sellers with differentiated products compete and coordinate in a market by setting price frames first in Stage 1 and price levels later in Stage 2. A consumer’s purchase decision depends not only on the difference of the net values, but also on the difference of the price frames. An increase in frame difference strengthens the obfuscation and yields two effects: the increase of market power and the equalization of market shares. The two effects are in the same direction for the weaker seller, while opposite for the stronger seller, which leads to the potential tension in the choice of price frame. We show that the former effect is dominated by the latter when the frame difference is small relative to the quality difference, and the former becomes dominant when the frame difference is relatively large. Therefore, the weaker seller’s profit is monotone in frame difference, while the relationship exhibits a “U”-shape pattern for the stronger seller. The equilibrium play is characterized as follows. In Stage 2, given firms’ price frame decisions, there exists a unique pure strategy pricing equilibrium. In Stage 1, a seller-optimal framing equilibrium path exists: the frame difference is maximized and so does the consumer obfuscation, if the effect of frame difference on consumer decision exceeds a threshold; otherwise both sellers play a perfect hide-and-seek game, in which they keep the most and the least frame difference with equal probability. There also exists a trivial hide-and-seek framing equilibrium in which firms’ price frames are uniformly distributed over the frame space. Under stronger convexity assumptions, there exist countably infinite hide-and-seek equilibria, which converges from the perfect one to the trivial one. Our study contributes to the growing literature on price format, price dispersion, strategic coordination, consumer obfuscation, and consumer protection.JEL Classifications
- D8 - Information, Knowledge, and Uncertainty