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Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices

Author

Listed:
  • Saroj Bhattarai

    (Pennsylvania State University)

  • Raphael Schoenle

    () (Department of Economics, Brandeis University)

Abstract

In this paper, we establish three new facts about price-setting by multi-product firms and contribute a model that can explain our findings. On the empirical side, using micro-data on U.S. producer prices, we first show that firms selling more goods adjust their prices more frequently but on average by smaller amounts. Moreover, the higher the number of goods, the lower is the fraction of positive price changes and the more dispersed the distribution of price changes. Second, we document substantial synchronization of price changes within firms across products and show that synchronization plays a dominant role in explaining pricing dynamics. Third, we find that within-firm synchronization of price changes increases as the number of goods increases. On the theoretical side, we present a state-dependent pricing model where multi-product firms face both aggregate and idiosyncratic shocks. When we allow for firm-specific menu costs and trend inflation, the model matches the empirical findings.

Suggested Citation

  • Saroj Bhattarai & Raphael Schoenle, 2010. "Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices," Working Papers 15, Brandeis University, Department of Economics and International Businesss School.
  • Handle: RePEc:brd:wpaper:15
    as

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    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP15.pdf
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    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP15R.pdf
    File Function: Revised version, 2011
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    References listed on IDEAS

    as
    1. V. Bhaskar, 2002. "On Endogenously Staggered Prices," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 97-116.
    2. Gita Gopinath & Oleg Itskhoki, 2010. "Frequency of Price Adjustment and Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 675-727.
    3. Peter J. Klenow & Oleksiy Kryvtsov, 2008. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 863-904.
    4. Carlos Carvalho, 2005. "Heterogeneity in Price Setting and the Real Effects of Monetary Shocks," Macroeconomics 0509017, EconWPA, revised 10 Oct 2005.
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    7. Pinelopi K Goldberg & Amit K Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Multiproduct Firms and Product Turnover in the Developing World: Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 1042-1049, November.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Multi-Product Firms; Number of Goods; State-Dependent Pricing; U.S. Producer Prices;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • 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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