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Pricing Decisions in the Euro AreaHow Firms Set Prices and Why$
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Silvia Fabiani, Claire Suzanne Loupias, Fernando Manuel Monteiro Martins, and Roberto Sabbatini

Print publication date: 2007

Print ISBN-13: 9780195309287

Published to Oxford Scholarship Online: September 2007

DOI: 10.1093/acprof:oso/9780195309287.001.0001

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The Pricing Behavior of Spanish Firms

The Pricing Behavior of Spanish Firms

Chapter:
(p.165) 11 The Pricing Behavior of Spanish Firms
Source:
Pricing Decisions in the Euro Area
Author(s):

Luis J. Álvarez

Ignacio Hernando

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195309287.003.0012

This chapter reports the results of a survey carried out by the Banco de España on a sample of around 2,000 Spanish firms to deepen the understanding of firms' price setting behaviour. Most firms are price setters that use predominantly state-dependent rules or a combination of time- and state-dependent rules when reviewing their prices. Changes in costs are the main factor underlying price increases, whereas changes in market conditions (demand and competitors' prices) are the main driving forces of price decreases. The degree of price flexibility is directly related to the share of energy inputs over total costs and to the intensity of competition, whereas it is inversely linked to the labour share. The three theories of price stickiness that receive the highest empirical support are implicit contracts, coordination failure, and explicit contracts.

Keywords:   Price setting, Spanish firms, price stickiness, survey, cost structure

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