The price setting behaviour of Portuguese firms - evidence from survey data
Abstract
This paper analyses the results of a survey conducted by the Banco de Portugal with the main purpose of investigating firms’ price setting behaviour. The evidence points to the presence of a considerable degree of price stickiness, which seems to be higher in services than in manufacturing. The presence of implicit contracts between firms and their customers under which the former pledge to stabilise their prices as a way to increase customers’ loyalty is apparently the main reason that prevents firms from changing their prices more promptly. Other relevant sources of price stickiness were also found: coordination problems arising from the preference of firms not to change their prices unless their competitors do so, the constraint imposed by a high share of fixed costs, marginal costs that vary little when costs are an important determinant in pricing decisions or the presence of formal contracts that are costly to renegotiate.Download Info
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Paper provided by European Central Bank in its series Working Paper Series with number 562.Length: 53 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050562
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Related research
Keywords: Inflation persistence; price-setting behaviour and survey data.;Other versions of this item:
- Fernando Martins, 2006. "The Price Setting Behaviour of Portuguese Firms Evidence From Survey Data," Working Papers w200604, Banco de Portugal, Economics and Research Department.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
References
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