(Georgia Institute of Technology, 2004-07-13)
Zhang, Feng
This paper presents a model of the probability of price response to the previous periods inventory absolute and relative level for U.S. paper and paperboard industry. The initial part of the paper contains a theoretical analysis of the phenomenon. The proposed framework indicates that the inventory level plays an important leading role in the price adjustment.
The model is then estimated with monthly data extending from 1980 to 1999. The LPM and Probit models are used to estimate the effect of absolute and relative inventory level on the probability of price variations. The estimated results are in agreement with the oligopolistic market condition of U.S. paper and paperboard industry, showing the price upward adjustment is sticker and rigid than the price downward adjustment while the output level is indifferent to the previous months inventory fluctuation.