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Summary

What’s the price of your product? In the past, one would probably assume that by your we mean the product you are selling. With the advent of massive information regarding prospective consumers, we are approaching an era in which your is more likely to stand for the product you are buying.

Firms want to maximize profits, and if they are constrained to charge a single price for every potential consumer, they might leave money on the table. However, if a customer reveals her willingness to pay (the key concept in this chapter), sellers may charge different prices to different people for the same goods or services.

The Mexican economy experienced two large crises: in 1995 and in 2008. The dynamics and origins of the episodes are very different; nevertheless, is there a common underlying mechanism? First, by applying the Business Cycle Accounting method, we find that the efficiency wedge is the main driver of output during both episodes. We present an equivalence between the neoclassical growth model with distortions and a small open economy with imported intermediate goods inputs, in which relative price changes manifest themselves as changes on the efficiency wedge. This result proposes a solution for the theoretical puzzle regarding the relationship between terms of trade shocks and productivity. Finally, the model is able to reproduce both the intensities and velocities of the crises in Mexico.

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2 - The Economics of Price Personalization

Summary

Accounting for Mexican business cycles

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2 results

2 - The Economics of Price Personalization

Summary

Accounting for Mexican business cycles