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Price Setting Behaviour in the Netherlands: Results of a Survey

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  • Marco Hoeberichts
  • Ad Stokman

Abstract

This paper presents the results of a survey among Dutch firms on price setting behaviour in the Netherlands. It aims to identify how sticky prices are, which prices are sticky and why they are sticky. It is part of the Eurosystem Inflation Persistence Network (IPN). The most distinctive feature of the Dutch survey is its broad coverage of the business community (seven sectors and seven size classes). Our primary finding is that pric e setting behaviour depends critically on both a firm’s size and the competitive environment it faces. Small firms in particular adopt more rigid pricing policies, and the weaker the competition a firm faces, the stickier a company’s price will be. Furthermore, we find that wholesale and retail prices are more flexible than those for business-to-business services. The survey suggests that explic it and informal contracting are the most important sources of price stickiness. Menu costs and psychological pricing – two prominent explanations of price stickiness in the literature – are of minor importance. Finally, there is clear evidence of asymmetries in shocks driving price increases and decreases.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 073.

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Date of creation: Dec 2005
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Handle: RePEc:dnb:dnbwpp:073

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Keywords: price setting; nominal rigidity; survey data;

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References

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  14. Luc Aucremanne & Martine Druant, 2005. "Price-setting behaviour in Belgium: what can be learned from an ad hoc survey ?," Working Paper Research 65, National Bank of Belgium.
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  16. Julio Rotemberg & Garth Saloner, 1986. "The Relative Rigidity of Monopoly Pricing," Working papers 414, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Laurence Ball & N. Gregory Mankiw, 1994. "A sticky-price manifesto," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
  18. Fernando Martins, 2005. "The price setting behaviour of Portuguese firms - evidence from survey data," Working Paper Series 562, European Central Bank.
  19. Luc Aucremanne & Martine Druant, 2005. "Price-setting behaviour in Belgium - what can be learned from an ad hoc survey?," Working Paper Series 448, European Central Bank.
  20. 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.
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