Price Changes - Stickiness and Internal Coordination in Multiproduct Firms

40 Pages Posted: 18 Feb 2016

See all articles by Wilko H. Letterie

Wilko H. Letterie

Maastricht School of Business and Economics; Maastricht University

Øivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

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Date Written: January 14, 2016

Abstract

We assess empirically the micro-foundations of producers’ sticky pricing behaviour. The intertemporal profit function considered accounts for various functional forms of menu costs. The focus is on the analysis of multiproduct plants, and the menu costs therefore also allow for economies of scope. The structural model developed is tested on a merged panel of monthly product- and plant-specific producer prices and yearly plant-specific producer statistics for Norwegian plants. We find evidence of linear and fixed menu costs that account for inaction of price adjustment. Convex menu costs are statistically significant but of moderate importance. Finally, our estimates suggest economies of scope in adjusting prices resulting in (incomplete) synchronization of price changes.

Keywords: price setting, micro data, multiproduct firms

JEL Classification: E300, E310

Suggested Citation

Letterie, Wilko H. and Nilsen, Oivind Anti, Price Changes - Stickiness and Internal Coordination in Multiproduct Firms (January 14, 2016). CESifo Working Paper Series No. 5701, Available at SSRN: https://ssrn.com/abstract=2733986

Wilko H. Letterie (Contact Author)

Maastricht School of Business and Economics ( email )

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Maastricht University

P.O. Box 616
Maastricht, 6200MD
Netherlands

Oivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics ( email )

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N-5045 Bergen
Norway

IZA Institute of Labor Economics

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Germany

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