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Storable Good Market With Intertemporal Cost Variations

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  • Fabio Antoniou
  • Raffaele Fiocco

Abstract

We investigate a firm's dynamic pricing policy in a storable good market where the cost of production varies over time. In anticipation of a cost increase, the firm selects its prices to affect consumer storage. Price dynamics hinge upon the curvature of demand and the magnitude of the consumer storage cost. When demand is not too convex, the consumers' reluctance to store leads the firm to reduce prices to stimulate consumer storage. This shapes the firm's cost pass‐through and the price commitment effects. Our analysis provides a novel explanation for the well‐documented puzzling patterns of incomplete and negative cost pass‐through.

Suggested Citation

  • Fabio Antoniou & Raffaele Fiocco, 2023. "Storable Good Market With Intertemporal Cost Variations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 361-385, February.
    • Handle: RePEc:wly:iecrev:v:64:y:2023:i:1:p:361-385
    DOI: 10.1111/iere.12596
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    Cited by:

    1. Ruochen Li, 2024. "Stockpiling‐based pricing and its welfare effects," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(3), pages 371-391, September.
    2. Fabio Antoniou & Raffaele Fiocco, 2023. "Storable Good Market With Intertemporal Cost Variations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 361-385, February.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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