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Pricing Decisions in the Euro AreaHow Firms Set Prices and Why$
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Silvia Fabiani, Claire Suzanne Loupias, Fernando Manuel Monteiro Martins, and Roberto Sabbatini

Print publication date: 2007

Print ISBN-13: 9780195309287

Published to Oxford Scholarship Online: September 2007

DOI: 10.1093/acprof:oso/9780195309287.001.0001

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Summary of Results for the Euro Area

Summary of Results for the Euro Area

(p.32) 2 Summary of Results for the Euro Area
Pricing Decisions in the Euro Area

Silvia Fabiani

Claire Loupias

Martine Druant

Ignacio Hernando

Claudia Kwapil

Bettina Landau

Fernando Martins

Thomas Mathä

Sabbatini Roberto

Harald Stahl

Ad Stokman

Oxford University Press

This chapter summarizes the results of firms' pricing practices collected through surveys conducted by the national central banks of nine countries. The results suggest that the model of perfect competition with the law of one price is not the blueprint for euro area markets: markup pricing is the dominant practice adopted by firms in setting prices and price discrimination, across customers and markets, and it is very common. Around one-third of the companies follow mainly time-dependent rules while the remaining two-thirds use pricing rules with some element of state dependence. Firms review prices with a frequency between one and three times per year and take into account a wide range of information including expectations, although about one-third of them follows a purely backward-looking behavior. Price movements in response to shocks are asymmetrical: price increases are mostly affected by cost shocks, and price reductions mostly affected by changes in market conditions (demand and competitors' prices).

Keywords:   Euro area firms, price setting, price stickiness, asymmetries in price adjustment, survey data

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