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Prices and Market Shares in a Menu Cost Model

  • Christian Hellwig

    (UCLA)

  • Ariel Burstein

    (UCLA and NBER)

We explore the quantitative importance of pricing complementarities in the context of a menu cost model of price adjustment. Using super-market scanner data, we document new evidence on the co-movement of prices and market shares at the product level, suggesting that changes in prices and market shares are not solely driven by idiosyncratic cost changes. We then calibrate a menu cost model to match the data regarding both prices and market shares, and use that to infer the degree of pricing complementarities at the firm level. Although we conclude that there are moderate levels of pricing complementarities, they appear to be too weak to generate much larger aggregate real effects from nominal shocks than a model without pricing complementarities.

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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 327.

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Date of creation: 2007
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Handle: RePEc:red:sed007:327
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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