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How are prices adjusted in response to shocks? Survey evidence from Austrian firms
Author(s) -
Kwapil Claudia,
Scharler Johann,
Baumgartner Josef
Publication year - 2010
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1482
Subject(s) - demand shock , economics , shock (circulatory) , rigidity (electromagnetism) , monetary economics , competition (biology) , microeconomics , econometrics , medicine , ecology , structural engineering , biology , engineering
In this paper we investigate the response of prices to shocks based on a survey of Austrian firms. We find that firms are more likely to change prices after a cost shock than after a demand shock. In this vein, our analysis suggests that regular customers are an important explanation for price rigidity after demand shocks. Furthermore, lacking competition is another significant explanation for price stickiness. Finally, we find asymmetric responses after cost and demand shocks. Prices appear to be more rigid downward than upward after cost shocks, while they are more rigid upward than downward in reaction to shifts in demand. Copyright © 2009 John Wiley & Sons, Ltd.