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Strategic Complementarity and Asymmetric Price Setting among Firms

Maiko Koga, Koichi Yoshino and Tomoya Sakata
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Maiko Koga: Bank of Japan
Koichi Yoshino: Bank of Japan
Tomoya Sakata: Bank of Japan

No 19-E-5, Bank of Japan Working Paper Series from Bank of Japan

Abstract: Exploiting a large panel of firm survey data from Japan (Tankan survey), we provide micro evidence of strategic complementarity in firms' price setting. We find that a firm's price adjustment is affected by its competitors' pricing behavior and that this adjustment is larger when the firm is lowering its price, which accords with the theoretical predictions of quasi-kinked demand. Our results also indicate that firms with greater pricing power tend to be less sensitive to their competitors' behavior. Finally, we observe that heightened demand uncertainty mitigates the effect of shifts in demand conditions on the likelihood of price adjustment-evidence of wait and see pricing.

Keywords: Demand uncertainty; Firm survey data; Price setting; Strategic complementarity (search for similar items in EconPapers)
JEL-codes: D22 D84 E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mac
Date: 2019-03-29
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