Asymmetric Price Adjustment in the Small
Thursday, 06 February, 2014

On February 4, 2014, Daniel Levy, professor of economics at Bar Ilan University and Emory University and member of ISET’s International Faculty Committee, presented his paper “Asymmetric Price Adjustment in the Small", (that he co-authored with Haipeng Chen, Sourav Ray, and Marc Bergen) to ISET professors, students and researchers.

Prof. Levy’s interesting topic and entertaining presentation kept the audience of the conference hall totally engaged throughout the seminar.

We have all noticed that some prices go up rapidly and go down slowly. This phenomenon is explained by the so-called “rocket and feathers” effect.

This seminar was about different types of asymmetry in price adjustments. The research was conducted based on data from the prices in a large chain of retail supermarkets in the US. The data consists of weekly observations of the price of nearly 20,000 different products over the course of 400 weeks. It was found that small price increases (less than 10 cents) are more frequent than small price decreases. Various questions were posed based on this information: Is this finding country-specific or a general trend? A similar pattern was observed in both Spain and France. How can this be explained? Is it a result of inflation? Partially yes, but the effect is still present when periods of inflation are excluded from the data. It seems that this trend can best be explained by consumer inattention.

Prof. Levy explained that consumers’ information for processing costs depends on their opportunity costs, their ability to carry out the necessary calculations, their experience of doing these types of calculations, and the number of calculations required. As such, the asymmetry could vary with the level of customer attentiveness over shopping intensity and across different products and product categories. If this is true, then in periods of high unemployment, people have more time and less money and thus should be more attentive towards even small price changes. Indeed, according to the data, the asymmetry is smaller in periods of high unemployment. Prof. Levy finished his seminar by discussing other markets for which similar results hold true.

ISET would like to thank Prof. Levy for providing a perfect example of how economic concepts can be presented in an entertaining, simple, and interesting manner.