Prices and Supply Disruptions During Natural Disasters

33 Pages Posted: 28 Sep 2013 Last revised: 19 Mar 2023

See all articles by Alberto Cavallo

Alberto Cavallo

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Eduardo A. Cavallo

Inter-American Development Bank (IDB) - Research Department

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: September 2013

Abstract

We study the daily behavior of supermarket prices and product availability following two recent natural disasters: the 2010 earthquake in Chile and the 2011 earthquake in Japan. In both cases there was an immediate and persistent effect on product availability. The number of goods available for sale fell 32% in Chile and 17% 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 Chile 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.

Suggested Citation

Cavallo, Alberto and Cavallo, Eduardo A. and Rigobon, Roberto, Prices and Supply Disruptions During Natural Disasters (September 2013). NBER Working Paper No. w19474, Available at SSRN: https://ssrn.com/abstract=2332544

Alberto Cavallo (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
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Eduardo A. Cavallo

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-447
Cambridge, MA 02142
United States
617-258-8374 (Phone)
617-258-6855 (Fax)

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