Monday, April 22, 2019

Newsflash: Washers and Dryers are Strong Complements

A new NBER paper by Aaron B. Flaaen, Ali Hortaçsu, Felix Tintelnot estimates the effects of the 2018 50% tariff on washing machines. As expected, they found that domestic producers increased washer prices by about 12%. Interestingly though:
the price of dryers—a complementary good not subject to tariffs—increased by an equivalent amount.

Dryers were not directly affected by the tariffs. Indirectly though, domestic white goods producers were also able to increase the price of dryers due to their complementarity in demand. Evidently, customers are not willing to break up a set even for a 12% lower price on dryers

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