The survey was conducted in 2004 by the National Bank of Belgium and involved 1,979 firms in the industrial, construction, trade and services sectors, in a sample that should represent about 60% of Belgian GDP (Aucremanne and Druant 2005: 8, 10).
Under normal conditions, 65.7% of firms used time dependent price setting (Aucremanne and Druant 2005: 25), and of these 60% reviewed prices once a year, and 20% twice a year (Aucremanne and Druant 2005: 28).
It was further found that 55% of firms actually changed prices once a year, 18% less often, and 27% more than once a year (Aucremanne and Druant 2005: 31).
In line with other surveys, it was found that the two major price setting methods were (1) prices set based on costs plus mark-up and (2) prices based on competitors’ price (with the profit margin not determined directly by the company) (Aucremanne and Druant 2005: 22). The way in which this question was asked confirms that the category “competitors’ prices” on other surveys tends to be conceal mark-up pricing.
A clear problem with these types of surveys can be seen in the fact that Aucremanne and Druant (2005) do not ask firms explicitly whether they set their mark-up over total average unit costs or marginal costs (Aucremanne and Druant 2005: 18).
Nevertheless, the firms were also asked to score the importance of theories explaining price stickiness in the following way:
1 = unimportantThe top 5 theories were as follows:
2 = of minor importance
3 = important
4 = very important. (Aucremanne and Druant 2005: 18).
(1) Implicit contractsThe results of this question, however, are clearly flawed by the failure to even include “mark-up pricing” as a theory, despite the survey finding that this was important in price setting.
(2) Explicit contracts
(3) Sluggish costs / constant marginal costs
(4) Importance of fixed costs / liquidity constraints
(5) Kinked demand curve / coordination failure (Aucremanne and Druant 2005: 34).
But the result that many firms report relatively flat variable cost curves over the business cycle is important (Aucremanne and Druant 2005: 35), and confirmed by other surveys.
BIBLIOGRAPHY
Aucremanne, Luc and Martine Druant. 2005. “Price-Setting Behaviour in Belgium. What can be learned from an ad hoc Survey?,” ECB Working Paper Series No. 448
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp448.pdf
Aucremanne, Luc and Martine Druant. 2007. “Why Are Prices Sticky?: Evidence from an Ad Hoc Survey in Belgium,” in S. Fabiani, C. Suzanne Loupias, F. M. Monteiro Martins and Roberto Sabbatini (eds.), Pricing Decisions in the Euro Area: How Firms set Prices and Why. Oxford University Press, New York. 69–82.
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