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New survey evidence on the pricing behaviour of Luxembourg firms

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  • Patrick Lünnemann

    ()

  • Thomas Mathä

    ()

Abstract

This paper analyses the pricing behaviour of Luxembourg firms based on survey evidence. Luxembourg firms typically have low market share, many competitors and longstanding customer relationships. Price discrimination is frequently applied. A majority of firms use price review rules that include elements of state dependency. The median firm reviews and changes prices twice a year. The results suggest an almost equal share of firms applying forward-looking, backward-looking and rules of thumb behaviour. The adjustment speed is faster when cost goes up and demand goes down than in the opposite cases. The most relevant theories explaining price rigidity are implicit contracts, cost-based pricing and explicit contracts. Increases in labour and other costs are the most important factors leading to price increases; for price reductions it is price reductions by competitors followed by declining labour costs.

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File URL: http://www.bcl.lu/fr/publications//cahiers_etudes/19/BCLWP019.pdf
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Bibliographic Info

Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 19.

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Length: 36 pages
Date of creation: May 2006
Date of revision:
Publication status: published as A Survey of Price Setting Practices of Luxembourg Firms, in S. Fabiani, C. Loupias, F. Martins and R. Sabbatini (eds.): Pricing Decisions in the Euro Area: How Firms Set Prices and Why, Oxford Univ. Press, 2007, Ch. 8, pp. 124-139.
Handle: RePEc:bcl:bclwop:bclwp019

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Web page: http://www.bcl.lu/

Related research

Keywords: Survey data; price setting; price rigidity; adjustment speed;

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References

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  1. Josef Baumgartner & Claudia Kwapil & Johann Scharler, 2005. "The Price-Setting Behavior of Austrian Firms: Some Survey Evidence," Working Papers 100, Oesterreichische Nationalbank (Austrian Central Bank).
  2. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
  3. Álvarez, Luis J. & Hernando, Ignacio, 2005. "The price setting behaviour of Spanish firms: evidence from survey data," Working Paper Series 0538, European Central Bank.
  4. Fabiani, Silvia & Druant, Martine & Hernando, Ignacio & Kwapil, Claudia & Landau, Bettina & Loupias, Claire & Martins, Fernando & Matha, Thomas & Sabbatini, Roberto & Stahl, Harald & Stokman, Ad, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," MPRA Paper 808, University Library of Munich, Germany.
  5. Julio Rotemberg & Garth Saloner, 1986. "The Relative Rigidity of Monopoly Pricing," Working papers 414, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Lünnemann, Patrick & Mathä, Thomas Y., 2005. "Consumer price behaviour in Luxembourg: evidence from micro CPI data," Working Paper Series 0541, European Central Bank.
  7. S. Fabiana & M. Druant & I. Hernando & C. Kwapil & B. Landau & C. Loupias & F. Martins & T. Math� & R. Sabbatini & H. Stahl & A. Stokman, 2005. "The Pricing Behaviour of Firms in the Euro Area New Survey Evidence," DNB Working Papers 058, Netherlands Central Bank, Research Department.
  8. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers 67, Bank of England.
  9. Patrick Lünnemann & Thomas Y. Mathä, 2010. "Rigidities and inflation persistence of services and regulated prices," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 193-208.
  10. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2005. "Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 313-38, April.
  11. Stahl, Harald, 2005. "Price setting in German manufacturing: new evidence from new survey data," Working Paper Series 0561, European Central Bank.
  12. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  13. Silvia Fabiani & Angela Gattulli & Roberto Sabbatini, 2004. "The pricing behaviour of Italian firms: new survey evidence on price stickiness," Temi di discussione (Economic working papers) 515, Bank of Italy, Economic Research and International Relations Area.
  14. Loupias, Claire & Ricart, Roland, 2004. "Price setting in France: new evidence from survey data," Working Paper Series 0423, European Central Bank.
  15. Dennis W. Carlton, 1987. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  16. Fernando Martins, 2006. "The Price Setting Behaviour of Portuguese Firms Evidence From Survey Data," Working Papers w200604, Banco de Portugal, Economics and Research Department.
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Citations

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Cited by:
  1. Stokman, Ad C.J. & Hoeberichts, Marco M., 2006. "Price setting behaviour in the Netherlands: results of a survey," Working Paper Series 0607, European Central Bank.
  2. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 380, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Ercan Karadas & Defne Mutluer & Yasemin Barlas Ozer & Cevriye Aysoy, 2006. "Turkiye’de Imalat Sanayindeki Firmalarin Fiyatlama Davranisi," Working Papers 0602, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  4. Andreas M. Fischer & Matthias Lutz & Manueal Wälti, 2007. "Who Prices Locally? Survey Evidence of Swiss Exporters," University of St. Gallen Department of Economics working paper series 2007 2007-39, Department of Economics, University of St. Gallen.
  5. Claudia Kwapil & Johann Scharler & Josef Baumgartner, 2007. "Price-setting behavior of Austrian firms," Empirica, Springer, vol. 34(5), pages 491-505, December.

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