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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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Why Are Prices Sticky?

Why Are Prices Sticky?

Evidence from an Ad Hoc Survey in Belgium

(p.69) 4 Why Are Prices Sticky?
Pricing Decisions in the Euro Area

Luc Aucremanne

Martine Druant

Oxford University Press

This chapter reports the results of a survey on price setting behavior conducted in 2004 among 2,000 Belgian firms. The results clearly deviate from a situation of perfect competition and show that firms have some market power. Prices are rather sticky, the average duration between two consecutive price reviews being ten months, whereas it amounts to thirteen months between two consecutive price changes, and both time-dependent and state-dependent behavior are observed. Evidence is found in favor of both nominal (mainly implicit and explicit contracts) and real rigidities (including flat marginal costs and counter-cyclical movements in desired mark-ups). The survey results point to a non-negligible degree of non-optimal price setting.

Keywords:   survey, price setting behavior, price rigidity, real rigidity, nominal rigidity, time-dependent pricing, state-dependent pricing

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