New survey evidence on the pricing behaviour of Luxembourg firms

Patrick Lünnemann () and Thomas Mathä

No 19, BCL working papers from Central Bank of Luxembourg

Abstract: This paper analyses the pricing behaviour of Luxembourg firms based on survey evidence. Luxembourg firms typically have low market share, many competitors and longstanding customer relationships. Price discrimination is frequently applied. A majority of firms use price review rules that include elements of state dependency. The median firm reviews and changes prices twice a year. The results suggest an almost equal share of firms applying forward-looking, backward-looking and rules of thumb behaviour. The adjustment speed is faster when cost goes up and demand goes down than in the opposite cases. The most relevant theories explaining price rigidity are implicit contracts, cost-based pricing and explicit contracts. Increases in labour and other costs are the most important factors leading to price increases; for price reductions it is price reductions by competitors followed by declining labour costs.

Keywords: Survey data; price setting; price rigidity; adjustment speed (search for similar items in EconPapers)
JEL-codes: C14 C21 C22 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2006-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as A Survey of Price Setting Practices of Luxembourg Firms, in S. Fabiani, C. Loupias, F. Martins and R. Sabbatini (eds.): Pricing Decisions in the Euro Area: How Firms Set Prices and Why, Oxford Univ. Press, 2007, Ch. 8, pp. 124-139.

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Related works:
Working Paper: New survey evidence on the pricing behaviour of Luxembourg firms (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bcl:bclwop:bclwp019

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