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Prices and Supply Disruptions during Natural Disasters
Author(s) -
Cavallo Alberto,
Cavallo Eduardo,
Rigobon Roberto
Publication year - 2014
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12141
Subject(s) - stockout , natural disaster , stock (firearms) , economics , product (mathematics) , natural experiment , stock market , agricultural economics , monetary economics , demographic economics , business , commerce , geography , operations management , archaeology , meteorology , statistics , geometry , mathematics , context (archaeology)
We study the daily behavior of supermarket prices and product availability following two recent natural disasters: the 2010 earthquake in C hile and the 2011 earthquake in J apan. In both cases there was an immediate and persistent effect on product availability. The number of goods available for sale fell 32 percent in C hile and 17 percent in Japan from the day of the disaster to its lowest point, which occurred 61 and 18 days after the earthquakes, respectively. Product availability recovered slowly, and a significant share of goods remained out of stock after six months. By contrast, prices were relatively stable and did not increase for months after the earthquakes, even for goods that were experiencing severe stockouts. These trends are present at all levels of aggregation, but appear strongly in non‐perishable goods and emergency products. Our findings shed light into the determinants of sticky prices in conditions where traditional adjustment costs are less important. In particular, we look at the frequency and magnitudes of price changes in both countries and find that the results in C hile are consistent with pricing models where retailers have fear of “customer anger”. In Japan, by contrast, the evidence suggests a bigger role for supply disruptions that restricted the ability of retailers to re‐stock goods after the earthquake.