Price-setting behaviour in Belgium: what can be learned from an ad hoc survey ?

L. Aucremanne and M. Druant
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L. Aucremanne: National Bank of Belgium, Research Department
M. Druant: National Bank of Belgium, Research Department

Economic Review, 2004, issue iv, 17-47

Abstract: The article reports the results of an ad hoc survey on price-setting behaviour conducted in February 2004 among 2,000 Belgian firms. The reported results clearly deviate from a situation of perfect competition and show that firms have some market power. Pricing-to-market is applied by a majority of industrial firms. Prices are rather sticky. The average duration between two consecutive price reviews is 10 months, whereas it amounts to 13 months between two consecutive price changes. This evidence is consistent with the fact that both the price-reviewing process and the act of changing a price entail specific costs. Most firms adopt time-dependent price-reviewing under normal circumstances. However, when specific events occur, the majority will adopt a state-dependent behaviour. Evidence is found in favour of both nominal (mainly implicit and explicit contracts) and real rigidities (including fl at marginal costs and counter-cyclical movements in desired mark-ups), in line with the recent macro-literature where the interplay between both types of rigidity is emphasised. The survey results point to a non-negligible degree of non-optimal price-setting, suggesting that informational frictions could also be a source of sluggishness in the inflation process.

Keywords: price-setting behaviour; price rigidity; real rigidity; survey (search for similar items in EconPapers)
JEL-codes: D40 E31 L11 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (9)

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