Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 21/2016: Price Changes - Stickiness and Internal Coordination in Multiproduct Firms.

Wilko Letterie () and Øivind A. Nilsen ()
Additional contact information
Wilko Letterie: Maastricht University, Postal: Maastricht University, School of Business and Economics, Department of Organization and Strategy, P.O. Box 616, 6200 MD Maastricht, , The Netherlands
Øivind A. Nilsen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

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.

Keywords: Price Setting; Micro Data; Multiproduct Firms

JEL-codes: E30; E31

38 pages, December 23, 2016

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