Sticky-Down

DEFINITION of 'Sticky-Down'

The tendency of a price to move up easily but prove quite resistant to moving down. Sticky-down is an extension of “price stickiness,” which is the resistance of a price or set of prices to change. Sticky-down prices may be due to imperfect information or poor decisions made by management. Sticky-down prices for goods that consumers know should be substantially lower may foster anger and resentment, since these prices will be perceived as an attempt to “gouge” consumers.

BREAKING DOWN 'Sticky-Down'

Fuel prices at the petrol pump or gas station are a great example of the sticky-down phenomenon. When crude oil rises beyond $100 per barrel, pump prices in Canada rise in tandem with the price of crude (or sometimes even faster). Say the price is $1.40 per liter when crude oil is at $110. But if crude oil falls by $10 overnight because the fear premium embedded in the price has dissipated, the pump price will not adjust for a while. At best, it may stay at $1.40 per liter even if crude oil continues to fall.

Sticky-down may be more of an issue for goods and products that consumers cannot do without, and where price volatility can be exploited. In the case of petrol or gasoline, consumers are not likely to return from the pump without filling their vehicles because the price of fuel is a few cents higher than it should be. In addition, most consumers are well aware that global crude oil prices are quite volatile, and this volatility is exploited by pump-owners in keeping prices at higher levels.

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