Choosing between Time and State Dependence: Micro Evidence on Firms' Price‐Reviewing Strategies

25 Pages Posted: 20 Jun 2013

See all articles by Daniel A. Dias

Daniel A. Dias

University of Illinois at Urbana-Champaign - Department of Economics; Technical University of Lisbon (UTL) - Centre for Applied Mathematics and Economics (CEMAPRE)

Carlos Robalo Marques

Bank of Portugal - Economic Research Department

Fernando Martins

Bank of Portugal - Research Department; University of Lisbon - School of Economics and Management; Universidade Lusíada, Lisboa

Multiple version iconThere are 2 versions of this paper

Date Written: July 2013

Abstract

Because of recent findings based on survey data, it is now well known that firms differ from each other with respect to their price‐reviewing strategies. While some firms review their prices at fixed intervals of time, others prefer to perform price revisions in response to changes in economic conditions. Some theories have been suggested to explain this. However, empirical evidence on the relative importance of the factors that determine the different strategies of firms is virtually non‐existent. In this paper, we help to fill this gap by investigating the factors that explain why firms follow time‐dependent, state‐dependent, or both time‐ and state‐dependent price‐reviewing rules. We find that the strategies of firms vary with firm characteristics that have a bearing on the importance of information costs, with the variability of the optimal price, and with the sensitivity of profits to non‐optimal prices.

Keywords: Information costs, menu costs, multinomial probit, price stickiness, survey data

JEL Classification: C25, D40, E31

Suggested Citation

Dias, Daniel A. and Robalo Marques, Carlos and Martins, Fernando, Choosing between Time and State Dependence: Micro Evidence on Firms' Price‐Reviewing Strategies (July 2013). The Scandinavian Journal of Economics, Vol. 115, Issue 3, pp. 756-780, 2013, Available at SSRN: https://ssrn.com/abstract=2282343 or http://dx.doi.org/10.1111/sjoe.12023

Daniel A. Dias (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

Technical University of Lisbon (UTL) - Centre for Applied Mathematics and Economics (CEMAPRE) ( email )

Rua do Quelhas, 6
Lisboa, 1200
Portugal

Carlos Robalo Marques

Bank of Portugal - Economic Research Department ( email )

R. do Ouro, 27
Lisboa, 1100-150
Portugal

Fernando Martins

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
Portugal

University of Lisbon - School of Economics and Management ( email )

Rua do Quelhas, n.º 6
Lisbon, 1200-781
Portugal

Universidade Lusíada, Lisboa ( email )

Rua da Junqueira, 188 - 198
Lisboa, 1349-001
Portugal

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
285
PlumX Metrics