IMD business school for management and leadership courses
Latest Articles
The reset premium: Option value under asymmetric price commitment
We show that a one-sided price-adjustment rule, with free price cuts but a fixed daily reset for price increases, raises the reset price even under risk neutrality, mean-zero wholesale cost shocks, and perfect consumer information. The mechanism is option-theoretic: a higher reset price preserves pass-through in adverse cost states, while favora…
By
Harry J. Paarsch and
Karl Schmedders
September 2026, vol. 268, 113146, https://doi.org/10.1016/j.econlet.2026.113146
The reset premium: Option value under asymmetric price commitment
Summary
We show that a one-sided price-adjustment rule, with free price cuts but a fixed daily reset for price increases, raises the reset price even under risk neutrality, mean-zero wholesale cost shocks, and perfect consumer information. The mechanism is option-theoretic: a higher reset price preserves pass-through in adverse cost states, while favora…
Contact
Research Information & Knowledge Hub for additional information on IMD publications