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UID:ee343ab5b1d5606f5413a4d9937671b3
CATEGORIES:Seminars
CREATED:20170421T174450
SUMMARY:Lunch Seminar: David Argente (University of Chicago)
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:Price-Setting under Uncertain Demand: A Menu Cost Model with Price Experime
 ntation\nAbstract:\n We document a new set of salient facts on the pricing 
 moments over the life-cycle of U.S. products. First, entering products chan
 ge prices twice as often as the average product. Second, the average size o
 f these adjustments is at least 50 percent larger than the average price ch
 ange. We argue that a menu cost model with price experimentation can ration
 alize these findings. The firm is uncertain about its demand elasticity und
 er this setting, but can experiment with its price to endogenously affect i
 ts posterior beliefs which are updated in a Bayesian fashion. As a result, 
 firms face the trade-off between increasing the speed of learning through p
 rice experimentation and maximizing their static profits. This mechanism ca
 n endogenously generate large price changes, without the use of fat-tailed 
 idiosyncratic shocks, and can replicate the life-cycle patterns we document
 . We show quantitatively that the cumulative output effect of an unanticipa
 ted monetary shock is 40 percent larger than in Golosov and Lucas (2007). O
 n impact, selection is weakened as the experimentation motive alters the di
 stribution of desired price changes and decreases the fraction of firms nea
 r the margin of adjustment. Furthermore, the notion of a product’s life-cyc
 le generates an additional form of cross-sectional heterogeneity in the fre
 quency of price adjustment. This causes the monetary shock to be further pr
 opagated.\n
DTSTAMP:20260406T054608Z
DTSTART:20161019T130000Z
DTEND:20161019T210000Z
SEQUENCE:0
TRANSP:OPAQUE
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