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  • May 2023
  • Article

Competition in Pricing Algorithms

By: Zach Y. Brown and Alexander J. MacKay
We document new facts about pricing technology using high-frequency data, and we examine the implications for competition. Some online retailers employ technology that allows for more frequent price changes and automated responses to price changes by rivals. Motivated... View Details
Keywords: Pricing Algorithms; Pricing Frequency; Commitment; Online Competition; Price; Information Technology; Competition
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  • May 2005
  • Article

Customer Anger at Price Increases, Changes in the Frequency of Price Adjustment and Monetary Policy

By: Julio J. Rotemberg
Keywords: Customers; Price; Change; Money; Policy
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  • 2019
  • Article

More Amazon Effects: Online Competition and Pricing Behaviors

By: Alberto Cavallo
I study how online competition, with its shrinking margins, algorithmic pricing technologies, and the transparency of the web, can change the pricing behavior of large retailers in the U.S. and affect aggregate inflation dynamics. In particular, I show that in the past... View Details
Keywords: Amazon; Online Prices; Inflation; Uniform Pricing; Price Stickiness; Monetary Economics; Economics; Macroeconomics; Inflation and Deflation; System Shocks; United States
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  • 2024
  • Working Paper

Adjusting Prices in the Long-tail: The Role of Competitive Monitoring

By: Ayelet Israeli and Eric Anderson
Most e-commerce retailers offer a long-tail of very low demand products. Individually, these items may have low sales but collectively they are critical to the overall e-commerce business model. Because of their minimal sales, pricing is a constant challenge. The... View Details
Keywords: Algorithmic Pricing; Ecommerce; Price Monitoring; Price; Competition; Retail Industry
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  • Article

Are Online and Offline Prices Similar? Evidence from Large Multi-Channel Retailers

By: Alberto Cavallo
Online prices are increasingly used for measurement and research applications, yet little is known about their relation to prices in physical stores, where most retail transactions occur. I conduct the first large-scale comparison of prices simultaneously collected... View Details
Keywords: Online Prices; Offline Prices; Multi-channel Retailers; Price; Internet and the Web; Measurement and Metrics; Retail Industry
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  • 22 Mar 2017
  • Research & Ideas

What's the Ideal Frequency for a Sales Quota?

quota. This raises a key question for sales managers: What kind of quota is the most motivating? Could salesforce performance be kick-started if that quota incentive was delivered more frequently? The answer is contained in a new paper, The Effects of Quota View Details
Keywords: by Carmen Nobel
  • 03 Feb 2020
  • Working Paper Summaries

Competition in Pricing Algorithms

Keywords: by Zach Y. Brown and Alexander MacKay
  • April 2021
  • Article

A Model of Multi-Pass Search: Price Search Across Stores and Time

By: Navid Mojir and K. Sudhir
In retail settings with price promotions, consumers often search across stores and time. However, the search literature typically only models one pass search across stores, ignoring revisits to stores; the choice literature using scanner data has modeled search across... View Details
Keywords: Consumer Search; Multi-pass Search; Price Search; Store Search; Spatial Search; Temporal Search; Spatiotemporal Search; Dynamic Structural Models; MPEC; Price Promotions; Store Loyalty; Consumer Behavior; Price; Spending; Marketing; Mathematical Methods
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  • 2013
  • Working Paper

Asset Price Dynamics with Limited Attention

By: Mark Seasholes, Terrence Hendershott, Sunny X. Li and Albert J. Menkveld
This paper studies the role that limited attention and inefficient risk sharing play in stock price deviations from the efficient prices at horizons from one day to one month. We expand the Due (2010) slow-moving capital model to analyze multiple groups of investors... View Details
Keywords: Transitory Volatility; Limited Attention; Individuals; Market Makers; Asset Pricing; Financial Markets; Volatility
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  • 12 Mar 2018
  • Working Paper Summaries

Using Online Prices for Measuring Real Consumption Across Countries

Keywords: by Alberto Cavallo, W. Erwin Diewert, Robert C. Feenstra, Robert Inklaar, and Marcel P. Timmer
  • Research Summary

Output and asset price fluctuations

What are the sources of business cycles? How are these shocks propagated in the economy? Why are their effects so persistent? How can we explain asset price fluctuations? How are shocks transmitted internationally?To study these questions, I have developed a series... View Details

  • 09 Mar 2020
  • Research & Ideas

Warring Algorithms Could Be Driving Up Consumer Prices

retain more control, says MacKay. “It might take an expert a week to redo their analysis and update prices as conditions change, but if you have the factors that go into that analysis codified as part of a View Details
Keywords: by Kristen Senz; Retail
  • 18 Jun 2024
  • Research & Ideas

Central Banks Missed Inflation Red Flags. This Pricing Model Could Help.

explains Cavallo, the Thomas S. Murphy Professor of Business Administration at HBS. “They tend to rely on time-dependent models, which assume a fixed frequency of price changes. Many of them failed to... View Details
Keywords: by Rachel Layne; Financial Services; Banking
  • July 2021
  • Article

Augmenting Markets with Mechanisms

By: Samuel Antill and Darrell Duffie
We explain how the common practice of size-discovery trade detracts from overall financial market efficiency. At each of a series of size-discovery sessions, traders report their desired trades, generating allocations of the asset and cash that rely on the most recent... View Details
Keywords: Mechanism Design; Price Impact; Size Discovery; Allocative Efficiency; Workup; Dark Pool; Financial Markets; Market Design; Performance Efficiency
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  • 2017
  • Working Paper

Optimal Tilts: Combining Persistent Characteristic Portfolios

By: Malcolm Baker, Ryan Taliaferro and Terry Burnham
We examine the optimal weighting of four tilts in US equity markets from 1968 through 2014. We define a “tilt” as a characteristic-based portfolio strategy that requires relatively low annual turnover. This is a continuum, with small size, a very persistent... View Details
Keywords: Risk Anomaly; Beta; Capital Asset Pricing Model; Factor Investing
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  • Fourth Quarter 2017
  • Article

Optimal Tilts: Combining Persistent Characteristic Portfolios

By: Malcolm Baker, Ryan Taliaferro and Terry Burnham
We examine the optimal weighting of four tilts in U.S. equity markets from 1968 through 2014. We define a “tilt” as a characteristic-based portfolio strategy that requires relatively low annual turnover. This is a continuum, with small size (a very persistent... View Details
Keywords: Risk Anomaly; Beta; Capital Asset Pricing Model; Factor Investing
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  • Forthcoming
  • Article

Large Shocks Travel Fast

By: Alberto Cavallo, Francesco Lippi and Ken Miyahara
We document a sizeable increase in the frequency of price adjustments following the large energy shocks of 2022. We use a tractable New Keynesian model, calibrated to the pre-shock data, to interpret such a pattern. The calibration highlights the state-dependence of... View Details
Keywords: System Shocks; Price; Cost; Inflation and Deflation; Financial Institutions
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  • August 2018
  • Article

Extrapolation and Bubbles

By: Nicholas Barberis, Robin Greenwood, Lawrence Jin and Andrei Shleifer
We present an extrapolative model of bubbles. In the model, many investors form their demand for a risky asset by weighing two signals: an average of the asset’s past price changes and the asset’s degree of overvaluation. The two signals are in conflict, and investors... View Details
Keywords: Bubble; Extrapolation; Volume; Price Bubble; Mathematical Methods
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  • 2023
  • Working Paper

Dynamic Pricing, Intertemporal Spillovers, and Efficiency

By: Alexander J. MacKay, Dennis Svartbäck and Anders G. Ekholm
Pricing technology that allows firms to rapidly adjust prices has two potential benefits. Time-varying prices can respond to high-frequency demand shocks to generate greater revenues, and they can also be used to smooth out demand to reduce costs. Using data... View Details
Keywords: Price; Consumer Behavior; Applications and Software; Volatility
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  • 2024
  • Chapter

Inflation and Misallocation in New Keynesian Models

By: Alberto Cavallo, Francesco Lippi and Ken Miyahara
The New Keynesian framework implies that sluggish price adjustment results in a distorted allocation of resources. We use a simple model to quantify these unobservable distortions, using data that depict the price-setting behavior of firms, specifically the frequency... View Details
Keywords: Macroeconomics; Inflation and Deflation; Price; Analytics and Data Science; Cost
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