Asymmetric Price Effects Research Articles

Asymmetric price effects on food demand of rural households: Panel evidence from China

This study aims at detecting asymmetric price effects on food demand for rural households and compares different specifications for including reference prices in demand models. Different from the standard demand model, asymmetric price effects on food demand imply that households react stronger to price increases than price decreases as compared with the reference price. This study tests for asymmetric price effects on food demand separately for pure consumers and farmers in rural areas for the first time. Using three waves of a rural household panel survey in six poor counties of China, this study shows asymmetric price effects on demand for rice and potatoes for pure consumers, and for pork for farmers. Comparisons of different methods of specifying the reference price in demand models show that the model adding price increase and price decrease terms to the standard demand model has a coherent foundation in demand theory and incorporates both acquisition and transaction utility. Although this model had a slightly better fit to the data than the segmented price model—separating people facing price decreases from people facing price increases—it hardly showed evidence of asymmetric price effects. Asymmetric price effects were mostly found to be significant in the segmented price model. Taking into account asymmetric price effects in food demand analysis uncovers the complexity of the mechanism of price effects on demand under different price change directions and may be helpful in estimating less biased price elasticities. Possible causes of mixed asymmetric price effects for different food items and different types of households are discussed.

Uncovering the complex asymmetric relationship between trading activity and commodity futures price: Evidenced from QNARDL study

This study cracks the multidimensional asymmetric relationship between trading activity (volume and open interest) and commodity futures prices to analyze the short-term dynamics and long-term cointegrating relationship across different state of the market considering both positive and negative changes in trading activity using a novel Quantile Non-linear Autoregressive Distributed Lag (QNARDL) approach. First, the asymmetric price effect is found in short- and long-run of volume and open interest. Second, the asymmetric price effect due to positive and negative changes in open interest (volume) is found in the short-run (long-run) for copper (gold and crude) futures. Third, distributional asymmetry is found in the above two price effects on all three commodity futures implying that the price effect changes with changes in market conditions such bearish, bullish, and normal. Our findings will help the portfolio managers for effective investment and diversification decision, traders for better trading strategy, hedgers for better risk management strategy, and regulators and concerned exchange for effective policy making in varied market conditions.

Price preferences reveal asymmetric price effect—A preliminary study

AbstractIn the context of the consumption of two food products, we demonstrate that the price‐framing affect distribution is bi‐model, rather than normal. We do this through a preference typology for expensive versus cheap products, conducted through two independent tasting experiments: one involving chocolate the other, cheese. Participants made product quality judgments, first without price information and then with. Crucially, each tasting line‐up carried a pair of identical but differently priced products. In each experiment the results split the sample populations into two subsets: those who preferred the more expensive duplicate products and those who either preferred the cheaper alternative or were price neutral. Through testing of a high/low price‐preference typology, we find evidence of strong‐positive price affectation for individuals that prefer high priced, but identical products. Such asymmetrical susceptibility to price information suggests that food‐based price framing effects may be also experienced by different populations at markedly different intensities.Practical ApplicationsPractical implications for marketers of fast‐moving consumer goods are provided. Due to the bi‐model distribution of price‐framing affect rates, we submit that vulnerability to the framing effect is not universal among consumers. Therefore, by identifying those consumers who are more price sensitive, emphasis can be placed on highlighting the extrinsic product characteristics of these goods, such as price, rather than on the intrinsic qualities such as smell, taste and texture. Advertising should also be tailored in content, style and tone when targeting these different types of consumers. The study also builds on the work relating to cue‐based segmentation of consumers and posits the idea that segmentation can be conducted based on their sensitivity to the price cue.

Modelling asymmetric price responses of industrial energy demand with a dynamic hierarchical model

Accounting for asymmetric price responses while modelling industrial energy demand is required for a good understanding of the long-run properties of energy demand. This is to prevent formulating energy related policies on incomplete information resulting from masking the impacts of long-run impacts of different phases of energy price. Hence, this paper explores the asymmetric price responses of industrial energy demand for a panel of 54 sectors across 34 countries over the period 2000–2014 using a dynamic hierarchical model. The empirical results from both the regional and sectoral analysis indicate a considerable heterogeneity in the estimated long-run elasticities and preference for using hierarchical model. Further, the estimated elasticities in general indicate that producers are more responsive to price increases than price decreases. In addition, empirical findings reveal that industrial energy demand is characterised by endogenous factors embedded in the asymmetric price effects. From a policy perspective, these findings provide an evidence of marked long-run impacts of energy demand (that are not observable from a traditional symmetric energy consumption pattern) required in formulating dependable energy policies.

The underlying drivers of economy-wide energy efficiency and asymmetric energy price responses

A good understanding of energy efficiency trend and its potential underlying drivers is required when considering policies for energy conservation and environmental sustainability. In light of this, we estimate energy efficiency trends using index decomposition analysis, data envelopment analysis and stochastic frontier analysis as robust methods. The driving factors (including asymmetric price responses) are examined using a dynamic panel model estimated by Arellano and Bond (1991) GMM estimator. The application for 32 OECD countries found that none of the three methods leads to a consistent ranking between energy efficiency estimates and energy intensity – corroborating the criticism that energy intensity is not a good proxy for energy efficiency. The panel-data regressions using the energy efficiency estimates from the three methods show similarities in the impacts of the drivers (including energy price, foreign direct inflows, trade openness, population growth, temperature etc.) on energy efficiency. Although the results of asymmetric price responses of energy efficiency estimates vary slightly, we found insignificant evidence of asymmetric effects of total energy price but there are asymmetric responses with energy-specific prices. Thus, using energy-specific prices as well as allowing for asymmetric price effects in analysing drivers of energy efficiency is apt and informative in formulating energy policies.

Asymmetric price effects on gasoline consumption: evidence and Implications

ABSTRACTThe increased volatility of gasoline prices in the last 10 years has renewed the interest in how gasoline demand responds to new changes. Using recent urban household survey and Metropolitan Statistical Areas (MSA) level gasoline prices, this paper examines whether rising and falling fuel prices have symmetric effects on gasoline consumption. The findings indicate that an increase in gasoline prices induces larger behavioural responses than a decrease in gasoline prices would do. These results not only challenge the perfect price reversibility assumption used in many energy demand models, but also bear important implications for evaluating gasoline tax policies and demand projections.

Car Travel Demand: Spillovers and Asymmetric Price Effects in a Spatial Setting

A novel analysis framework for the spatial aspects of car travel, measured by vehicle miles traveled (VMT), is introduced in this paper. The specification of a dynamic spatial Durbin model enables the analysis of VMT spatial spillovers and diffusion between neighboring areas in the short and long run. The framework is further developed to capture and introduce to a spatial setting potential asymmetry and hysteresis that can reflect reference dependence and habits. A panel data set is compiled at the subregional level, based on official car mileage recordings in England and Wales. In addition to the inelastic long-run responses of VMT to fuel price (−0.124) and income (0.116) changes, the results illustrate asymmetries and hysteresis in price elasticities with a significant spatial component. The impact magnitude on VMT from a number of factors, such as alternative fuel use, fuel deserts in rural areas, and road network and car fleet characteristics, is also estimated. The results are consistent with the car use saturation hypothesis through the positive impact of motorization rate to VMT. The negative effect of public transport infrastructure on car travel is only significant in the spatial models. The paper demonstrates the applicability and importance of spatial econometrics in transport research.

Investments on the Norwegian Continental Shelf - an Empirical Analysis

Investments in oil and gas fields are regressed against variables on panel field-data from the start of oil and gas production on the Norwegian continental shelf in 1968 until 2016. Two alternative models track the observed investments aggregated across fields from 1970 until 2016 relatively accurately, except for the period 2012-2015. These years were marked by an almost world-wide recession in the aftermath of the financial crisis in 2008 and by the increase in production of shale-gas in the US. However when using data until 2010 in the estimation of the model, the fixed effect regression predicts rather accurately the development of aggregated across fields from 2011-2016. By using data only from 1995 until 2016 in the estimation of the fixed effect model the observed development after 2011 is also well tracked. The models imply rather strong and significant effect of the lagged oil price (Brent Blend) on investments. When data for the shorter period 1995-2016 is used, we get significant asymmetric price effects on investments, implying that an increase in the oil price has more positive effects on investments in periods with rising oil prices. In periods with declining prices the price history has a rather strong dampening impact on the effects of prices increases on investment. We also find strong and significant negative effects of lower expected remaining reserves on investments.

Asymmetric Price Effects of Competition

AbstractWhen price dispersion is prevalent, a relevant question is what happens to the whole distribution of equilibrium prices when the number of firms changes. Using data from the gasoline market in the Netherlands, we find, first, that markets with N competitors have price distributions that first‐order stochastically dominate the price distributions in markets with N+1 firms. Second, the effect of competition is stronger for the medium to upper percentiles of the price distribution. Finally, consumer gains from competition are larger for relatively well‐informed consumers. To account for these empirical patterns, we extend Varian's [1980] model by allowing for richer heterogeneity in consumer price information.

Commodity dynamics: A sparse multi-class approach

The correct understanding of commodity price dynamics can bring relevant improvements in terms of policy formulation both for developing and developed countries. Agricultural, metal and energy commodity prices might depend on each other: although we expect few important effects among the total number of possible ones, some price effects among different commodities might still be substantial. Moreover, the increasing integration of the world economy suggests that these effects should be comparable for different markets. This paper introduces a sparse estimator of the Multi-class Vector AutoRegressive model to detect common price effects between a large number of commodities, for different markets or investment portfolios. In a first application, we consider agricultural, metal and energy commodities for three different markets. We show a large prevalence of effects involving metal commodities in the Chinese and Indian markets, and the existence of asymmetric price effects. In a second application, we analyze commodity prices for five different investment portfolios, and highlight the existence of important effects from energy to agricultural commodities. The relevance of biofuels is hereby confirmed. Overall, we find stronger similarities in commodity price effects among portfolios than among markets.

Price Determination and Demand Flexibilities in the Ex-Vessel Market for Tuna in the Republic of Maldives

This article assesses the relationship between export and ex-vessel prices for tuna fish in the Republic of Maldives. The economic welfare of fishermen depends to a great extent on the price received for fish. The price of fish is set by external factors exogenous to fishermen. It is important in understanding the welfare of fishermen to understand the price links in the fish supply chain and the factors that impact the ex-vessel price of fish. This article uses three models to investigate price determination in the ex-vessel market; ARMAX, inverse demand equation and margin equation. The results provide statistically important price relationships and price flexibilities on asymmetric export price effects.

The cross-price effect on willingness-to-pay estimates in open-ended contingent valuation

Previous literature has shown that potential buyers use a reference price or product to form their opinion about the value of a new product. Therefore, the pricing decision is an interactive process. We investigate the two generalizations of the cross-price effect (the neighborhood price effect and the asymmetric price effect) on consumer willingness-to-pay (WTP) for multiple similar products in an open-ended contingent valuation context. Results show that the cross-price effect on WTP is prominent, with the neighborhood price effect holding in contingent valuation. No conclusions are reached about the asymmetric price effect.

Varying Elasticities and Forecasting Performance

This study assumes that tourists' demand reactions to income and price changes are asymmetric at different phases of the business cycle. In order to test this hypothesis, we analyzed the demand for international tourism in five source markets using a modified growth rate (MGR) model. The empirical evidence demonstrates that income elasticity is indeed asymmetric across the business cycle in four source markets. In addition, asymmetric price effects were found for one source market. To compare forecasting performance, we also estimated a time-varying parameter (TVP) model. The results show that the MGR model generally outperforms the TVP model. Copyright © 2013 John Wiley & Sons, Ltd.

Moderating Factors of Immediate, Gross, and Net Cross-Brand Effects of Price Promotions

This article examines cross-price promotional effects in a dynamic context. Among other things, we investigate whether previously established findings hold when consumer and competitive dynamics are taken into account. Five main influential effects (asymmetric price effect, neighborhood price effect, asymmetric share effect, neighborhood share effect, and private label versus national brand asymmetry) appear jointly in the second layer of a pooled HB-VEC-VARX model, together with brand- and category-specific variables. This study tests the relative importance of these key factors across three scenarios: with no market dynamics, when only consumer dynamics are considered, and when competitive reactions are also taken into account. The results confirm all five influential effects, even if they are jointly estimated, and consumer and competitive dynamics are taken into account. National brand/private label asymmetry has the strongest influence on the cross-price promotional effects and becomes significantly stronger when consumer and competitive dynamics are taken into account. Dynamic consumer responses and competitive reactions both affect cross-brand price elasticities, and contrary to expectations, competitive reactions accumulate rather than diminish cross-price elasticities. Preemptive switching does occur; i.e., a brand's promotion in period t hurts a competitor's sales in subsequent periods. Our findings are based on an extensive data set. To attain generalizable results, we analyze 33 categories in five stores—that is, 165 store/category combinations.

Stochastic Trends and Technical Change: The Case of Energy Consumption in the British Industrial and Domestic Sectors

This paper estimates energy demand in the British domestic and industrial sectors and analyzes the extent to which energy-saving technological change is exogenous, or induced by the energy price. The paper implements models with a linear trend, models making use of the price decomposition of Dargay and Gately (1995a) and the Structural Time Series Models (STSMs) of Harvey (1989). Stochastic trends have been found to be rather important while in neither of the sectors assessed in this study could the hypothesis of symmetric price effects be rejected. Following Hunt and Judge (2005), stochastic trend and asymmetric price effects are found to be substitutes in the industrial sector. In particular we conclude that asymmetric price effects can substitute for the slope in the stochastic trend. Finally, energy consumption in the industrial sector is strongly influenced by price while the effect of price in the domestic sector is markedly smaller.

Asymmetric Price Effects of Competition

This paper examines how the distribution of prices changes with the number of competitors in the market. Using gasoline price data from the Netherlands we find that as competition increases, the distribution of prices spreads out: the low prices go down while the high prices go up, on average. As a result, competition has an asymmetric effect on prices. These findings, which are consistent with a theoretical model where consumers differ in the information they have about prices, imply that consumers' gains from competition depend on their shopping behavior. In our data, all consumers, irrespective of the number of prices they observe, benefit from an increase in the number of gas stations. The magnitude of the welfare gain, however, is greater for those consumers that are aware of more prices. We conclude that an increase in the number of gas stations has a positive but unequal effect on the welfare of consumers in the Netherlands.

Asymmetric Price Effects of Competition

This paper examines how the distribution of prices changes with the number of competitors in the market. Using gasoline price data from the Netherlands we find that as competition increases, the distribution of prices spreads out: the low prices go down while the high prices go up, on average. As a result, competition has an asymmetric effect on prices. These findings, which are consistent with a theoretical model where consumers differ in the information they have about prices, imply that consumers' gains from competition depend on their shopping behavior. In our data, all consumers, irrespective of the number of prices they observe, benefit from an increase in the number of gas stations. The magnitude of the welfare gain, however, is greater for those consumers that are aware of more prices. We conclude that an increase in the number of gas stations has a positive but unequal effect on the welfare of consumers in the Netherlands.

Large trades and intraday futures price behavior

AbstractThis study examines the effects of large trades executed by outside customer on the prices of futures contracts traded on the Chicago Mercantile Exchange. We find that, on average, large buyer‐initiated trades have a larger permanent price impact (information effect) than large seller‐initiated trades, whereas the opposite is found for the temporary price impact (liquidity effects) of large trades. These results are consistent with previous findings for block and institutional trades in equity markets. However, we also find that the information effects of large sells are larger than large buys in bearish markets, whereas the results are the reverse in bullish markets. The liquidity price effects of buys are larger than the liquidity price effects of sells in bearish markets whereas the reverse results hold in bullish markets. Our results are consistent with the hypothesis that the current economic condition is a key determinant of asymmetric price effects between large buys and large sells. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:1147–1181, 2008

Bid ask spread in a competitive market with institutions and order size

Large orders, particularly from institutions, are quite common these days and hence there is interest to know if institutional trading has any bearing on the price effect associated with large trades. Recent empirical studies contradict earlier evidence of negative price effect on selling large blocks and find no price effect associated with large trades. Existing theoretical framework suggests a monotonic and increasing adverse price effect for large trades, where the motivation for a large trade is private information. We model a trading system where pure information, information-liquidity, and pure liquidity traders trade small and large sizes. The pure information traders strategically choose an order size. Institutions trade only large sizes because of their low execution costs for large trades; they are information-liquidity traders whose ability to use an information signal to determine their trades is subject to a binding liquidity constraint. We show that in such a market a separating equilibrium where trade size is informative does not exist and hence there is no price effect for large trades. Trade size may be revealing only if there is a buy sell asymmetry (large buy size is not equal to large sell size) or the corresponding price effect is asymmetric (price effect due to a large buy is not equal to that of a large sell). Further for a pooling equilibrium to exist, where trade size is not informative, the width of the market denoted by the ratio of order size (large size/small size) needs to be small, while the shallowness (inverse depth) of the market denoted by the ratio between pure information and institutional trades and the information signal needs to be stronger (higher). Our results on bid and ask prices and spread confirm recent empirical evidence on price effect of large and institutional trades found in the literature.

The Price Impact of Institutional Trades on S&P 500 Index Futures

This paper examines price behavior surrounding institutional trades on S&P 500 Index Futures on the CME over the period January 1994 to June 2004. Using CTR data which unambiguously classifies trades as either buyer- or seller-initiated, we find that over the entire sample period, buyer-initiated trades have larger permanent price effects than seller-initiated trades, consistent with previous findings in equity markets. However, we find the permanent price effect for sales is greater than for purchases in bear markets, with the reverse found for bull markets. These results are consistent with the hypothesis that contemporaneous market conditions are the major determinant of asymmetric price effects between purchases and sales in both equity and futures markets.