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New survey evidence on the pricing behaviour of Luxembourg firms

Listed author(s):
  • 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
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. 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. 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.
  3. 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.
  4. Loupias, Claire & Ricart, Roland, 2004. "Price setting in France: new evidence from survey data," Working Paper Series 423, European Central Bank.
  5. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
  6. 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.
  7. 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.
  8. Aucremanne, Luc & Druant, Martine, 2005. "Price-setting behaviour in Belgium: what can be learned from an ad hoc survey?," Working Paper Series 448, European Central Bank.
  9. Rotemberg, Julio J & Saloner, Garth, 1987. "The Relative Rigidity of Monopoly Pricing," American Economic Review, American Economic Association, vol. 77(5), pages 917-926, December.
  10. 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.
  11. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  12. Lünnemann, Patrick & Mathä, Thomas Y., 2005. "Consumer price behaviour in Luxembourg: evidence from micro CPI data," Working Paper Series 541, European Central Bank.
  13. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers 67, Bank of England.
  14. Hernando, Ignacio & Álvarez, Luis J., 2005. "The price setting behaviour of Spanish firms: evidence from survey data," Working Paper Series 538, European Central Bank.
  15. Martins, Fernando, 2005. "The price setting behaviour of Portuguese firms: evidence from survey data," Working Paper Series 562, European Central Bank.
  16. 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).
  17. 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.
  18. 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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