Pricing Under Distress

Uncertainty triggers two confounding effects: a realization and an anticipation effect. By using the 2019 riots in Chile as a quasi-natural experiment, we show that the pricing behavior of supermarkets is consistent with a pure anticipation effect: during the 31-day period following the start of the...

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Published in:NBER Working Paper Series 2024-06
Main Authors: Aruoba, S Borağan, Fernández, Andrés, Guzmán, Daniel, Pastén, Ernesto, Saffie, Felipe
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Fernández, Andrés
Guzmán, Daniel
Pastén, Ernesto
Saffie, Felipe
description Uncertainty triggers two confounding effects: a realization and an anticipation effect. By using the 2019 riots in Chile as a quasi-natural experiment, we show that the pricing behavior of supermarkets is consistent with a pure anticipation effect: during the 31-day period following the start of the Riots, supermarkets reduce the frequency of price changes and, conditional on a price change, the absolute magnitude of price changes increase. A quantitative menu cost model with news about a future increase in idiosyncratic demand dispersion can deliver these pricing dynamics. The effectiveness of monetary policy crucially depends on the timing of the intervention.
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