Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229680
Authors: 
Boskovic, Branko
Kapoor, Sacha
Markiewicz, Agnieszka
Scholnick, Barry
Year of Publication: 
2020
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2020-060/VI
Abstract: 
What explains apparent price rigidity over the business cycle? This paper shows that price fluctuations may be hidden in prices of add ons. Using 10 years of extended warranty data from a nationwide Canadian retailer, we show that extended warranty prices respond strongly to changes in local economic activity whereas prices of underlying durable goods do not. The procyclicality is driven by a shift in price setting behavior, where local stores use extended warranty discounts to make base durable demand less price elastic and, as a result, increase sales of durable goods. Discounts on extended warranties were especially sharp during the Great Recession.
Subjects: 
Add-on pricing
business cycles
JEL: 
E30
L81
Document Type: 
Working Paper

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