How Do Firms Set Prices? Narrative Evidence From Corporate Filings
37 Pages Posted: 2 Jun 2016 Last revised: 4 Feb 2018
Date Written: December 29, 2017
We quantify narrative evidence from archived corporate ﬁlings to construct a novel dataset on the price-setting behavior of public companies. Our approach is closely related to that of survey-based studies on price setting, but we collect data from two decades instead one speciﬁc point in time. This allows us to investigate variation over time, and to establish that qualitative information provided directly by ﬁrms is informative about the aggregate variables macroeconomists are fundamentally interested in. Our ﬁndings suggest that (i) price-setting is asymmetric and has a strong state-dependent component, (ii) real rigidities in the form of strategic pricing complementarities are very common, and (iii) an increase in the number of price changes does not necessarily reﬂect a decrease in price rigidity. We discuss to what extent our results can be explained by strategic reporting behavior and consider their implications in the context of widely-used price-setting models.
Keywords: price-setting, narrative evidence, price stickiness, real rigidities, incomplete pass-through
JEL Classification: E31
Suggested Citation: Suggested Citation