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Pricing behavior and the introduction of the euro: evidence from a panel of restaurants

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  • Eugenio Gaiotti

    (Banca d'Italia)

  • Francesco Lippi

    (Banca d'Italia)

Abstract

This paper assembles an original panel of data from 2,500 restaurants in Italy over 1998-2004, with the objective of studying whether the euro cash changeover had an impact on individual pricing behavior, as apparently perceived by consumers, and which economic mechanisms may explain it. On the first point, the data show that only about a price increase of 3-4 percentage points can be attributed to the new currency; the changeover focussed the public attention over a medium-run trend, prompting the attribution of the whole increase to the introduction of the euro. On the second point, we reach two conclusions. We find evidence consistent with the existence of “menu-costs”: during the changeover the rise in the average meal price is mainly due to a larger fraction of agents who simultaneously revise their price. We also find that during the changeover more market power (proxied by a index of concentration on local markets) was associated with larger price increases; we propose a simple interpretation based on consumer behavior which may also explain why the effects of the cash changeover were especially pronounced in this industry as opposed to more competitive ones.

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File URL: http://128.118.178.162/eps/mac/papers/0501/0501029.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0501029.

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Length: 45 pages
Date of creation: 20 Jan 2005
Date of revision: 15 Feb 2005
Handle: RePEc:wpa:wuwpma:0501029

Note: Type of Document - pdf; pages: 45
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Web page: http://128.118.178.162

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Keywords: euro cash changeover; menu cost;

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  1. Giancarlo Marini & Fabrizio Adriani & Pasquale Scaramozzino, 2003. "The Inflationary Consequences of a Currency Changeover: Evidence from the Michelin Red Guide," CEIS Research Paper 27, Tor Vergata University, CEIS.
  2. Bart Hobijn & Andrea Tanbalotti & Federico Ravenna, 2005. "Menu Costs at Work: Restaurant Prices and the Introduction of the Euro," 2005 Meeting Papers 659, Society for Economic Dynamics.
  3. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 655-690, May.
  4. 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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