Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market

52 Pages Posted: 5 Jan 2017

See all articles by Sara Fisher Ellison

Sara Fisher Ellison

Massachusetts Institute of Technology (MIT) - Department of Economics

Christopher M. Snyder

Dartmouth College - Department of Economics; National Bureau of Economic Research

Hongkai Zhang

Pandora

Multiple version iconThere are 2 versions of this paper

Date Written: October 31, 2016

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: sticky prices; managerial costs; dynamic structural estimation; ecommerce

JEL Classification: L11, C73, D21, L81

Suggested Citation

Fisher Ellison, Sara and Snyder, Christopher M. and Zhang, Hongkai, Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market (October 31, 2016). MIT Department of Economics Working Paper No. 17-01, Available at SSRN: https://ssrn.com/abstract=2893754 or http://dx.doi.org/10.2139/ssrn.2893754

Sara Fisher Ellison (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Christopher M. Snyder

Dartmouth College - Department of Economics ( email )

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HOME PAGE: http://www.dartmouth.edu/~csnyder/

National Bureau of Economic Research ( email )

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Hongkai Zhang

Pandora ( email )

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