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SSRN Electronic Journal
Article . 2006 . Peer-reviewed
Data sources: Crossref
EconStor
Research . 2006
Data sources: EconStor
EconStor
Research . 2006
Data sources: EconStor
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Regular Adjustment: Theory and Evidence?

Authors: Konieczny, Jerzy (Jurek) D.; Rumler, Fabio;

Regular Adjustment: Theory and Evidence?

Abstract

We ask why, in many circumstances and many environments, decision-makers choose to act on a time-regular basis (e.g. adjust every six weeks) or on a stateregular basis (e.g. set prices ending in a 9), even though such an approach appears suboptimal. The paper attributes regular behaviour to adjustment cost heterogeneity. We show that, given the cost heterogeneity, the likelihood of adopting regular policies depends on the shape of the benefit function: the flatter it is, the more likely, ceteris paribus, is regular adjustment. We provide sufficient conditions under which, when policymakers differ with respect to the shape of the benefit function (as in Konieczny and Skrzypacz, 2006), the frequency of adjustments across markets is negatively correlated with the incidence of regular adjustments. On the other hand, if policymakers differences are due to the level of adjustment costs (as in Dotsey, King and Wolman, 1999), then the correlation is positive. To test the model we apply it to optimal pricing policies. We use a large Austrian data set, which consists of the direct price information collected by the statistical office and covers 80% of the CPI over eight years. We run cross-sectional tests, regressing the proportion of attractive prices and, separately, the excess proportion of price changes at the beginning of a year and at the beginning of a quarter, on various conditional frequencies of adjustment, inflation and its variability, dummies for good types, and other relevant variables. We find that the lower is, in a given market, the conditional frequency of price changes, the higher is the incidence of time- and state-regular adjustment.

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Keywords

Preismanagement, Preistheorie, attractive prices, menu costs, Optimal pricing, Optimal pricing, Verbraucherpreisindex, Betriebliche Preispolitik, attractive prices, Lebenshaltungsindex, Staatliche Preispolitik, Österreich, E52, E31, ddc:330, L11, Optimal pricing, attractive prices, menu costs, menu costs, Verhaltensökonomik, D01, Preisregulierung, Schätzung, jel: jel:D01, jel: jel:E52, jel: jel:E31, jel: jel:L11

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
1
Average
Average
Average
bronze