The Price Setting Behaviour of Portuguese Firms: Evidence from Survey Data

53 Pages Posted: 15 Dec 2005

See all articles by Fernando Martins

Fernando Martins

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

Date Written: December 2005

Abstract

This paper analyses the results of a survey conducted by the Banco de Portugal with the main purpose of investigating firms' price setting behaviour. The evidence points to the presence of a considerable degree of price stickiness, which seems to be higher in services than in manufacturing. The presence of implicit contracts between firms and their customers under which the former pledge to stabilise their prices as a way to increase customers' loyalty is apparently the main reason that prevents firms from changing their prices more promptly. Other relevant sources of price stickiness were also found: coordination problems arising from the preference of firms not to change their prices unless their competitors do so, the constraint imposed by a high share of fixed costs, marginal costs that vary little when costs are an important determinant in pricing decisions or the presence of formal contracts that are costly to renegotiate.

Keywords: Inflation persistence, price-setting behaviour and survey data

JEL Classification: E31, D40, L11

Suggested Citation

Martins, Fernando, The Price Setting Behaviour of Portuguese Firms: Evidence from Survey Data (December 2005). ECB Working Paper No. 562, Available at SSRN: https://ssrn.com/abstract=868434

Fernando Martins (Contact Author)

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

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