Prices and Market Shares in a Menu Cost Model

Christian Hellwig and Ariel Burstein
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Ariel Burstein: UCLA and NBER

No 327, 2007 Meeting Papers from Society for Economic Dynamics

Abstract: We explore the quantitative importance of pricing complementarities in the context of a menu cost model of price adjustment. Using super-market scanner data, we document new evidence on the co-movement of prices and market shares at the product level, suggesting that changes in prices and market shares are not solely driven by idiosyncratic cost changes. We then calibrate a menu cost model to match the data regarding both prices and market shares, and use that to infer the degree of pricing complementarities at the firm level. Although we conclude that there are moderate levels of pricing complementarities, they appear to be too weak to generate much larger aggregate real effects from nominal shocks than a model without pricing complementarities.

Date: 2007
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Working Paper: Prices and Market Shares in a Menu Cost Model (2007)
Working Paper: Prices and Market Shares in a Menu Cost Model (2007)
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