Pricing behaviour in the euro area: results of a Eurosystem survey

M. Druant
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M. Druant: National Bank of Belgium, Research Department

Economic Review, 2005, issue iii, 79-86

Abstract: The article presents the results of surveys on several qualitative aspects of pricing behaviour, conducted within the framework of the Eurosystem Inflation Persistence Network (IPN). The surveys cover more than 11,000 firms in nine euro area countries. Despite some methodological differences between the surveys of individual countries, the results are quite similar in many respects. They reveal a relatively high degree of price rigidity, as the median firm changes prices once a year. The pricing behaviour may be both time-dependent and state-dependent. These findings are in line with IPN conclusions on the quantitative analysis of the pricing of goods and services. Furthermore, the surveys show that the environment in which the European firms operate deviates significantly from a perfect competition situation and that, in line with the basic premises of the new-Keynesian literature, firms do have market power and apply various forms of price discrimination. In addition, the surveys provide evidence that cost changes are more important for price increases than for price cuts, whereas changes in market conditions have a greater impact in the case of price cuts. The factors explaining price rigidity relate to the existence of implicit or explicit contracts, whereas menu costs or information-gathering costs are not regarded as major obstacles to price adjustments. The flatness of the marginal costs curve and the fact that firms are reluctant to be the first to change prices, are also seen as important impediments to price adjustments.

Keywords: pricing behaviour; price rigidity; survey; time-dependent pricing; state-dependent pricing; price discrimination; Eurosystem (search for similar items in EconPapers)
JEL-codes: D40 E31 L11 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (3)

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