Beyond Costs: The Dominant Role of Strategic Complementarities in Pricing

Elías Albagli, Francesco Grigoli, Emiliano Luttini, Dagoberto Quevedo and Marco Rojas

No 2025/164, IMF Working Papers from International Monetary Fund

Abstract: This paper documents five empirical facts about the role of strategic complementarities in firms’ price-setting behavior, using administrative data from Chilean firms. (1) Strategic complementarities play a dominant role in price setting, exerting a stronger influence than changes in marginal costs. (2) While the strength of strategic complementarities varies across sectors, they consistently outweigh the role of cost changes. (3) In high-inflation environments, firms become more responsive to changes in the prices of their competitors. (4) Firms respond more strongly to competitor price increases than to decreases, mirroring the `rockets and feathers' phenomenon of costs. (5) Strategic complementarities are stronger among firms with fewer competitors, larger market shares, and broader customer bases. These findings suggest that strategic complementarities---a source of real rigidities---are sizable, state-dependent, asymmetric, and shaped by market structure.

Keywords: Pass-through; price setting; strategic complementarities; state dependency; market structure (search for similar items in EconPapers)
Pages: 64
Date: 2025-08-15
New Economics Papers: this item is included in nep-com and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=569543 (application/pdf)

Related works:
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:imf:imfwpa:2025/164

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().