This working paper, titled "Prices Rise Faster Than They Fall," by Sam Peltzman, examines the tendency for output prices to respond more quickly to increases in input costs compared to decreases. The study uses large samples of diverse products, including 77 consumer goods and 165 producer goods, to analyze price adjustments in response to cost shocks. Key findings include: 1. **Asymmetry in Price Adjustments**: Over two-thirds of the markets examined exhibit a significant asymmetry, where output prices respond more to increases in input costs than to decreases. This asymmetry is substantial and durable, with the immediate response to a positive cost shock being at least twice that of a negative shock, and this difference persists for at least 5 to 8 months. 2. **Diverse Markets**: The asymmetry is found in both producer and consumer good markets, suggesting it is not limited to specific sectors or market structures. 3. **Supermarket Chain Analysis**: In contrast to the market-level findings, the response of a large supermarket chain to wholesale costs shows no asymmetry. This suggests that the asymmetry is a result of market interactions rather than a widespread decision rule. 4. **Correlates of Asymmetry**: The study explores various factors that might influence the degree of price asymmetry. It finds that input price volatility is negatively correlated with the degree of asymmetry, while market structure measures such as concentration and numbers have mixed effects. Inventory costs and menu costs do not show consistent relationships with asymmetry. 5. **Conclusion**: The paper challenges the standard economic theory of market behavior, which typically assumes symmetric price adjustments. The empirical evidence suggests that the theory needs to be revised to account for the observed asymmetry in price responses to cost changes. The study highlights the need for further theoretical and empirical research to understand this phenomenon better.This working paper, titled "Prices Rise Faster Than They Fall," by Sam Peltzman, examines the tendency for output prices to respond more quickly to increases in input costs compared to decreases. The study uses large samples of diverse products, including 77 consumer goods and 165 producer goods, to analyze price adjustments in response to cost shocks. Key findings include: 1. **Asymmetry in Price Adjustments**: Over two-thirds of the markets examined exhibit a significant asymmetry, where output prices respond more to increases in input costs than to decreases. This asymmetry is substantial and durable, with the immediate response to a positive cost shock being at least twice that of a negative shock, and this difference persists for at least 5 to 8 months. 2. **Diverse Markets**: The asymmetry is found in both producer and consumer good markets, suggesting it is not limited to specific sectors or market structures. 3. **Supermarket Chain Analysis**: In contrast to the market-level findings, the response of a large supermarket chain to wholesale costs shows no asymmetry. This suggests that the asymmetry is a result of market interactions rather than a widespread decision rule. 4. **Correlates of Asymmetry**: The study explores various factors that might influence the degree of price asymmetry. It finds that input price volatility is negatively correlated with the degree of asymmetry, while market structure measures such as concentration and numbers have mixed effects. Inventory costs and menu costs do not show consistent relationships with asymmetry. 5. **Conclusion**: The paper challenges the standard economic theory of market behavior, which typically assumes symmetric price adjustments. The empirical evidence suggests that the theory needs to be revised to account for the observed asymmetry in price responses to cost changes. The study highlights the need for further theoretical and empirical research to understand this phenomenon better.