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New survey evidence on the pricing behaviour of Luxembourg firms

  • Patrick Lünnemann

    ()

  • Thomas Mathä

    ()

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 forward-looking, 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.

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File URL: http://www.bcl.lu/fr/publications//cahiers_etudes/19/BCLWP019.pdf
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Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 19.

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Length: 36 pages
Date of creation: May 2006
Date of revision:
Publication status: published as A Survey of Price Setting Practices of Luxembourg Firms, in S. Fabiani, C. Loupias, F. Martins and R. Sabbatini (eds.): Pricing Decisions in the Euro Area: How Firms Set Prices and Why, Oxford Univ. Press, 2007, Ch. 8, pp. 124-139.
Handle: RePEc:bcl:bclwop:bclwp019
Contact details of provider: Web page: http://www.bcl.lu/

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  1. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2001. "Micro Foundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Working Paper Series 128, Sveriges Riksbank (Central Bank of Sweden).
  2. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers 67, Bank of England.
  3. 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.
  4. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
  5. Loupias, C. & Ricart, R., 2004. "Price Setting in France: new Evidence from Survey Data," Working papers 120, Banque de France.
  6. 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.
  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. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  9. Álvarez, Luis J. & Hernando, Ignacio, 2005. "The price setting behaviour of Spanish firms: evidence from survey data," Working Paper Series 0538, European Central Bank.
  10. 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.
  11. Martins, Fernando, 2005. "The price setting behaviour of Portuguese firms: evidence from survey data," Working Paper Series 0562, European Central Bank.
  12. Lünnemann, Patrick & Mathä, Thomas Y., 2005. "Consumer price behaviour in Luxembourg: evidence from micro CPI data," Working Paper Series 0541, European Central Bank.
  13. Fabiani, S. & Druant, M. & Hernando, I. & Kwapil, C. & Landau, B. & Loupias, C. & Martins, F. & Mathä, T. & Sabbatini, R. & Stahl, H. & Stockman, A., 2005. "The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence," Working papers 135, Banque de France.
  14. Julio Rotemberg & Garth Saloner, 1986. "The Relative Rigidity of Monopoly Pricing," Working papers 414, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Fabiani, Silvia & Gattulli, Angela & Sabbatini, Roberto, 2004. "The pricing behaviour of Italian firms: new survey evidence on price stickiness," Working Paper Series 0333, European Central Bank.
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