Price Changes - Stickiness and Internal Coordination in Multiproduct Firms

Abstract

We assess empirically the micro-foundations of producers' sticky pricing behaviour. We account for various functional forms of menu costs. The focus is on the analysis of multiproduct plants, and the menu costs therefore also allow for economies of scope. The structural model developed is tested using monthly product-and plant-specific producer prices for Norwegian plants. We find evidence of linear and fixed menu costs that account for inaction of price adjustment. Convex menu costs are statistically significant but of moderate importance. Finally, our estimates suggest economies of scope in adjusting prices resulting in (incomplete) synchronization of price changes.

Multi-Product Pricing: Theory and Evidence From Large Retailers in Israel

“…Studies of within-and across-firm price synchronization includeLevy et al (1997);Levy et al (1998);Dutta et al (1999);Fisher and Konieczny (2000);Midrigan (2011);Stella (2014);Bhattarai and Schoenle (2014);Letterie and Øivind Anti Nilsen (2016);Cavallo (2017);Gorodnichenko, Sheremirov, and Talavera (2018);Dedola, Kristoffersenz, and Züllig (2019).5 Two recent papers highlight other mechanisms that relate multi-product pricing with weak monetary nonneutrality Pasten and Schoenle (2016). show that under rational inattention, the effect of economies of scope in price adjustment may be reversed as attention to monetary or firm-specific shocks tends to increase with the number of products because of economies of scope in information processing Kryvtsov and Vincent (2019).…”