Working Paper: NBER ID: w4759
Authors: Saul Lach; Daniel Tsiddon
Abstract: Most of the theoretical literature on price-setting behavior deals with the special case in which only a single price is changed. At the retail-store level, at least, where dozens of products are sold by a single price-setter, price-setting policies are not formulated for individual products. This feature of economic behavior raises a host of questions whose answers carry interesting implications. Are price setters staggered in the timing of price changes? Are price changes of different products synchronized within the store? If so, is this a result of aggregate shocks or of the presence of a store- specific component in the cost of adjusting prices? Can observed small changes in prices be rationalized by a menu cost model? We exploit the multiproduct dimension of the dataset on prices used in Lach and Tsiddon (1992a) to explore several of these and other issues. To the best of our knowledge this is the first empirical work on this subject.
Keywords: price-setting behavior; staggered pricing; menu costs; inflation
JEL Codes: E31; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| staggered decisions across price-setters (D43) | observed staggering in price changes (E30) |
| monetary shocks (E39) | staggered responses of price-setters (D43) |
| staggered responses of price-setters (D43) | aggregate price levels (E30) |
| within-store synchronization of price changes (L11) | observed staggering in price changes (E30) |
| menu cost models (E10) | selective price changes (P22) |