Price Changes - Stickiness and Internal Coordination in Multiproduct Firms

45 Pages Posted: 18 Jan 2017

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: December 23, 2016

Abstract

We assess empirically the micro-foundations of producers’ sticky pricing behaviour. We account 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 using monthly product- and plant-specific producer prices 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: E30, E31

Suggested Citation

Letterie, Wilko H. and Nilsen, Oivind Anti, Price Changes - Stickiness and Internal Coordination in Multiproduct Firms (December 23, 2016). NHH Dept. of Economics Discussion Paper No. 21/2016, Available at SSRN: https://ssrn.com/abstract=2901350 or http://dx.doi.org/10.2139/ssrn.2901350

Wilko H. Letterie

Maastricht School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
31-43-3883645 (Phone)
31-43-3213137 (Fax)

Maastricht University

P.O. Box 616
Maastricht, 6200MD
Netherlands

Oivind Anti Nilsen (Contact Author)

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

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N-5045 Bergen
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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