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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. Rotemberg, Julio J & Saloner, Garth, 1987. "The Relative Rigidity of Monopoly Pricing," American Economic Review, American Economic Association, vol. 77(5), pages 917-26, December.
  2. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-58, September.
  3. 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.
  4. Patrick Lünnemann & Thomas Mathä, 2005. "Consumer price behaviour in Luxembourg: evidence from micro CPI data," BCL working papers 17, Central Bank of Luxembourg.
  5. Josef Baumgartner & Claudia Kwapil & Johann Scharler, 2005. "The Price-Setting Behavior of Austrian Firms: Some Survey Evidence," Working Papers 100, Oesterreichische Nationalbank (Austrian Central Bank).
  6. Patrick Lünnemann & Thomas Y. Mathä, 2005. "Nominal rigidities and inflation persistence in Luxembourg: a comparison with EU 15 member countries with particular focus on services and regulated prices," BCL working papers 14, Central Bank of Luxembourg.
  7. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
  8. Luis J. Álvarez & Ignacio Hernando, 2005. "The price setting behaviour of Spanish firms: evidence from survey data," Working Papers 0537, Banco de España;Working Papers Homepage.
  9. Loupias, Claire & Ricart, Roland, 2004. "Price setting in France: new evidence from survey data," Working Paper Series 0423, European Central Bank.
  10. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers 67, Bank of England.
  11. 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.
  12. Fernando Martins, 2006. "The Price Setting Behaviour of Portuguese Firms Evidence From Survey Data," Working Papers w200604, Banco de Portugal, Economics and Research Department.
  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. 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.
  15. 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.
  16. 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).
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