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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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Competition and Price Adjustment in the Euro Area

Competition and Price Adjustment in the Euro Area

Chapter:
(p.200) 13 Competition and Price Adjustment in the Euro Area
Source:
Pricing Decisions in the Euro Area
Author(s):

Luis J. Álvarez

Ignacio Hernando

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195309287.003.0014

This chapter explores the role of a number of factors, in particular the intensity of market competition, in explaining the heterogeneity in the degree of price stickiness across industries, on the basis of the information provided by surveys on pricing behavior conducted in nine euro area countries. Our results suggest that the price setting strategies of the most competitive firms give them a greater capacity to react to shocks and make, in practice, for greater flexibility in their prices. The direct influence of market competition on price flexibility is corroborated by a cross-country cross-industry econometric analysis based on the information provided by surveys. This analysis also shows that the cost structure and demand conditions help to explain the degree of price flexibility. Finally, it suggests that countries in which product market regulation is more relevant are characterized by less price flexibility.

Keywords:   Price setting, market competition, euro area firms, survey, price flexibility, product market regulation

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