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Price-setting behaviour in Belgium : what can be learned from an ad hoc survey ?

Author

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  • L. Aucremanne

    (National Bank of Belgium, Research Department)

  • M. Druant

    (National Bank of Belgium, Research Department)

Abstract

The article reports the results of an ad hoc survey on price-setting behaviour conducted in February 2004 among 2,000 Belgian firms. The reported results clearly deviate from a situation of perfect competition and show that firms have some market power. Pricing-to-market is applied by a majority of industrial firms. Prices are rather sticky. The average duration between two consecutive price reviews is 10 months, whereas it amounts to 13 months between two consecutive price changes. This evidence is consistent with the fact that both the price-reviewing process and the act of changing a price entail specific costs. Most firms adopt time-dependent price-reviewing under normal circumstances. However, when specific events occur, the majority will adopt a state-dependent behaviour. Evidence is found in favour of both nominal (mainly implicit and explicit contracts) and real rigidities (including fl at marginal costs and counter-cyclical movements in desired mark-ups), in line with the recent macro-literature where the interplay between both types of rigidity is emphasised. The survey results point to a non-negligible degree of non-optimal price-setting, suggesting that informational frictions could also be a source of sluggishness in the inflation process.

Suggested Citation

  • L. Aucremanne & M. Druant, 2004. "Price-setting behaviour in Belgium : what can be learned from an ad hoc survey ?," Economic Review, National Bank of Belgium, issue iv, pages 17-47, December.
    • Handle: RePEc:nbb:ecrart:y:2004:m:december:i:iv:p:17-47
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    References listed on IDEAS

    as
    1. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-446, July.
    2. Aucremanne, Luc & Dhyne, Emmanuel, 2004. "How frequently do prices change? Evidence based on the micro data underlying the Belgian CPI," Working Paper Series 331, European Central Bank.
    3. 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 313-338, April.
    4. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-666, September.
    5. Martin S. Eichenbaum & Jonas D. M. Fisher, 2003. "Evaluating the Calvo model of sticky prices," Working Paper Series WP-03-23, Federal Reserve Bank of Chicago.
    6. Fabiani, Silvia & Gattulli, Angela & Sabbatini, Roberto, 2004. "The pricing behaviour of Italian firms: new survey evidence on price stickiness," Working Paper Series 333, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Loupias, Claire & Ricart, Roland, 2004. "Price setting in France: new evidence from survey data," Working Paper Series 423, European Central Bank.
    2. M. Druant, 2005. "Pricing behaviour in the euro area : results of a Eurosystem survey," Economic Review, National Bank of Belgium, issue iii, pages 79-86, September.
    3. Stahl, Harald, 2005. "Price setting in German manufacturing: new evidence from new survey data," Discussion Paper Series 1: Economic Studies 2005,43, Deutsche Bundesbank.
    4. Aucremanne, Luc & Dhyne, Emmanuel, 2005. "Time-dependent versus state-dependent pricing: a panel data approach to the determinants of Belgian consumer price changes," Working Paper Series 462, European Central Bank.
    5. Kwapil, Claudia & Baumgartner, Josef & Scharler, Johann, 2005. "The price-setting behavior of Austrian firms: some survey evidence," Working Paper Series 464, European Central Bank.
    6. repec:onb:oenbwp:y::i:100:b:1 is not listed on IDEAS
    7. D. Cornille & B. Robert, 2005. "Sectoral interdependences and cost structure in the Belgian economy : an application for input-output tables," Economic Review, National Bank of Belgium, issue ii, pages 33-48, June.

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    More about this item

    Keywords

    price-setting behaviour; price rigidity; real rigidity; survey;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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