Price stickiness is a distinguishing assumption of the mainstream New Keynesian model. When and how businesses adjust their prices is thus a useful subject for macroeconomists.
ECB recently conducted a survey asking 58 leading non-financial companies that operate in eurozone their price-setting behaviors, the results provide a helpful dataset for macroeconomists’ use.
An important question is, how often do the companies review and change the prices? Here is the general picture:
The dispersion in the answers is the result of the differences between various sectors, as the survey found that the frequency of price reviews and changes tends to be highest in the retail sector, and lowest in consumer and business services, while the manufacturing sector somewhere in between.
Retailers mostly said they review and change their prices on a monthly, weekly and daily basis, depending on the products. Manufacturers, meanwhile said they tend to review the prices monthly and change them on a quarterly, semi-annual or annual basis. In other service sectors, price is normally reviewed annual.
Increasing the price of existing products is a common way to achieve price change while introducing new products with higher value content is another important way.
The survey also found that the most common reasons for sticky prices, stated by the companies, are cost-based pricing (increase price when they realize the cost is higher), contract restraints (including implicit contract with customers on the price steadiness), and fear about being undercut by competitors who don’t change their prices, the so-called coordination failure.
Morris, Richard, and Rupert de Vincent-Humphreys. “Price-Setting Behaviour: Insights from a Survey of Large Firms.” European Central Bank, November 4, 2019.
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