Price Setting Behaviour of Pakistani Firms: Evidence from Four Industrial Cities of Punjab

Wasim Malik (), Ahsan ul Haq Satti and Ghulam Saghir
Additional contact information
Ahsan ul Haq Satti: International Islamic University, Islamabad.
Ghulam Saghir: Pakistan Institute of Development Economics, Islamabad.

The Pakistan Development Review, 2008, vol. 47, issue 3, 247-266

Abstract: Macroeconomic research has mostly been focused on investigating micro foundations of the theory and transmission channels of policy ever since rational expectations have found place in the literature. It was in the 1990s that macroeconomists started working on models incorporating the assumption of nominal rigidity in the optimal behaviour of individuals and firms. These models have gained empirical support from both aggregate as well as firm-level data. The evidence for developing countries on the issue is limited and Pakistan is no exception. This study aims at investigating the price setting behaviour of Pakistani firms. Besides this, the potential effects of changes in financial cost on the overall pricing and production decisions have also been investigated. Pakistani firms perceive themselves to be operating in a competitive environment though most of their clientele is regular. The majority of the firms use current information while reviewing prices. Around 70 percent of the firms use either a state-dependent pricing rule or a combination of both time and state-dependent rules. Pakistani firms revise and change their prices usually in the months of June and July. The main determinants of change in the price level are the cost of raw material, energy and inflation. The competitors’ price generally figures in price decrease. Among the causes of price stickiness, implicit contract with the customers is at the top; the fixed term contract comes next. Most of the firms change their wage structure annually. About half of the firms index their workers’ wages to inflation and for the purpose refer to the earlier inflation rate. On the whole labour productivity and changes in inflation rate are observed as the main determinants of wage change.

Keywords: Price Setting Behaviour; Time and State Dependent Pricing Policy (search for similar items in EconPapers)
JEL-codes: E39 E52 L11 (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.pide.org.pk/pdf/Volume47/Issue3-2008.pdf (application/pdf)
Access to the full text is restricted. Please contact our publication Division for full article Email: publications@pide.org.pk Phone: +92-51-9248089

Related works:
Working Paper: Price Setting Behaviour of Pakistani Firms: Evidence from Four Industrial Cities of Punjab (2010)
Working Paper: Price Setting Behaviour of Pakistani Firms: Evidence from Four Industrial Cities of Punjab (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pid:journl:v:47:y:2008:i:3:p:247-266

Access Statistics for this article

More articles in The Pakistan Development Review from Pakistan Institute of Development Economics Contact information at EDIRC.
Bibliographic data for series maintained by Khurram Iqbal ().