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Prices and Market Shares in a Menu Cost Model

Author

Listed:
  • Christian Hellwig

    (UCLA)

  • Ariel Burstein

    (UCLA and NBER)

Abstract

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.

Suggested Citation

  • Christian Hellwig & Ariel Burstein, 2007. "Prices and Market Shares in a Menu Cost Model," 2007 Meeting Papers 327, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:327
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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