The bigger the stickier : asymmetric adjustment to negative demand shocks
Date
2020-07
Authors
Tasso, Javier
relationships.isContributorOfPublication
Ruzzier, Christian
Journal Title
Journal ISSN
Volume Title
Publisher
Universidad de San Andrés. Departamento de Economía
Abstract
This article studies the response to unanticipated demand shocks in a simultaneous competition
duopoly model, where adjustment is simultaneous as well it has no cost and it is characterized
by a single choice to adjust or not previous plans. In line with former analyses, responses are
asymmetric in two dimensions: firms always react to positive demand shocks while they may not
react to negative ones and, when demand shocks are negative and small-sized, only a single firm
adjusts its previous decisions. Since in the baseline model firms are identical, it is undetermined
which firm will adjust its decisions. Allowing for different marginal costs generates a third type of
asymmetry: There are medium-sized negative shocks such that only the firm with higher marginal
costs adjusts its price or quantities. This result suggest that the bigger firm is less willing to
modify its plans after the shock. This result is robust to other demand specifications and does not
depend on the shock being unanticipated. Furthermore, the analysis suggest that it is possible for
a negative shock to reduce market concentration, but this situation is not likely.
Description
Fil: Tasso, Javier. Universidad de San Andrés. Departamento de Economía; Argentina.
Keywords
Citation
Tasso, J. (2020). The bigger the stickier : asymmetric adjustment to negative demand shocks. [Tesis de maestría, Universidad de San Andrés. Departamento de Economía]. Repositorio Digital San Andrés. http://hdl.handle.net/10908/18502