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New survey evidence on the pricing behaviour of Luxembourg firms

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  • Lünnemann, Patrick
  • Mathä, Thomas Y.

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 forwardlooking, 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. JEL Classification: C21, C22, C14

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0617.

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Date of creation: May 2006
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Handle: RePEc:ecb:ecbwps:20060617

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

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References

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  1. Dennis W. Carlton, 1987. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  2. 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.
  3. Luis J. Álvarez & Ignacio Hernando, 2005. "The price setting behaviour of Spanish firms: evidence from survey data," Banco de Espa�a Working Papers 0537, Banco de Espa�a.
  4. 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.
  5. 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.
  6. Julio Rotemberg & Garth Saloner, 1986. "The Relative Rigidity of Monopoly Pricing," Working papers 414, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Kwapil, Claudia & Baumgartner, Josef & Scharler, Johann, 2005. "The price-setting behavior of Austrian firms: some survey evidence," Working Paper Series 0464, European Central Bank.
  8. 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.
  9. 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.
  10. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  11. Fernando Martins, 2006. "The Price Setting Behaviour of Portuguese Firms Evidence From Survey Data," Working Papers w200604, Banco de Portugal, Economics and Research Department.
  12. 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.
  13. Stahl, Harald, 2005. "Price setting in German manufacturing: new evidence from new survey data," Discussion Paper Series 1: Economic Studies 2005,43, Deutsche Bundesbank, Research Centre.
  14. Lünnemann, Patrick & Mathä, Thomas Y., 2005. "Consumer price behaviour in Luxembourg: evidence from micro CPI data," Working Paper Series 0541, European Central Bank.
  15. Loupias, Claire & Ricart, Roland, 2004. "Price setting in France: new evidence from survey data," Working Paper Series 0423, European Central Bank.
  16. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers 67, Bank of England.
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Cited by:
  1. Andreas M. Fischer & Matthias Lutz & Manuel Wälti, 2007. "Who Prices Locally? Survey Evidence of Swiss Exporters," Working Papers 2007-16, Swiss National Bank.
  2. Claudia Kwapil & Johann Scharler & Josef Baumgartner, 2007. "Price-setting behavior of Austrian firms," Empirica, Springer, vol. 34(5), pages 491-505, December.
  3. Marco Hoeberichts & Ad Stokman, 2005. "Price Setting Behaviour in the Netherlands: Results of a Survey," DNB Working Papers 073, Netherlands Central Bank, Research Department.
  4. 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.
  5. 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.

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