Mark-up Pricing in the Netherlands

Hoeberichts and Stokman (2006) report the results of a survey on price setting behaviour of firms in the Netherlands (see also Hoeberichts and Stokman 2007).

The research was conducted in May 2004 with a survey based on a questionnaire prepared by the Nederlandsche Bank, and 1,246 responses from firms were received, mainly in manufacturing and services (Hoeberichts and Stokman 2006: 7–8).

The results were then adjusted to be representative of the Dutch economy as a whole (Hoeberichts and Stokman 2006: 7).

The firms were asked how they determine the price of their main or typical product (Hoeberichts and Stokman 2006: 15).

The following results were obtained:

(1) Fixed markup 23.9%;

(2) Variable markup 35.4%;

(3) Competitors prices 21.6%;

(4) Linked to other variable (e.g. wages) 10.2%;

(5) Prices depend on customers 5.5%;

(6) Other 3.5%.
(Hoeberichts and Stokman 2006: 15).

Of all firms surveyed, 59.3% reported that they use mark-up prices, with variable mark-up being the most widely used form (at 35.4%).

Firms were also asked to rank eight theories explaining price stickiness, and they were ranked from the most important to least important as follows:

(1) Implicit contracts

(2) Nominal contracts

(3) Judging quality by price

(4) Temporary shocks

(5) Co-ordination failure

(6) Change non-price factors

(7) Pricing thresholds

(8) Menu costs.
(Hoeberichts and Stokman 2006: 17).

These results are broadly in line with other surveys, and show that both “implicit” contracts (the tendency for firms to feel bound to maintain price stability for their customers) and explicit nominal contracts are a major source of price rigidity, in addition to mark-up pricing.

BIBLIOGRAPHY
Hoeberichts, Marco and Ad Stokman. 2006. “Price Setting Behaviour in the Netherlands: Results of a Survey,” ECB Working Paper Series No 607 (April)
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp607.pdf

Hoeberichts, Marco and Ad Stokman. 2007. “A Price Behavior of Dutch Firms,” 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. 140–151.

The Price of Asset Bubbles in Housing

An article that caught my eye in the Independent:

Andrew Grice, “Half of Young Adults will Live with their Parents within a Generation from Now,” Independent, 1 May 2014.

In essence, the price of houses in the United Kingdom is so high that soon many of the young will be forced to live with their parents rather than be able to afford to buy a house.

What is missing from the story is the crucial point that this is mainly the consequence of UK asset price inflation in housing: this is a housing bubble.

As Steve Keen notes here, the UK has had the “Big Daddy” of housing bubbles with “a fourfold increase in real house prices since the late 1960s.”

This can be seen in the graph below.

The bubble clearly began under Thatcher. In fact, Thatcher’s UK was a trailblazer of asset bubbles in the neoliberal era: Thatcher’s financial deregulation – an important element of which was the Big Bang (1986) – contributed to the so-called Lawson boom (1986–1988), at the centre of which was a debt-financed property bubble. When this collapsed in the late 1980s, a debt deflation ensued in the UK in the early 1990s recession (Stewart 1993: 56–57, 101–102).

But this was just a minor harbinger of the tremendous bubble that exploded under New Labour (in power from 1997 to 2010).

The terrible price of this bubble is simply: many people will not even be able to afford a house if it continues.

Update
Philip Pilkington has an excellent post here pointing out the problems with the data from the BIS Property Price index as used by Steve Keen, and with better data from the Nationwide House Price Index:

Philip Pilkington, 2014. “Has the UK Got Another Property Bubble?,” Fixing the Economists, May 1, 2014.

The question whether the UK is in a property bubble now is difficult to call, and Philip speculates that the UK may develop into a new rentier society with property increasing owned by the rich and rented to lower income earners.

BIBLIOGRAPHY
Stewart, Michael. 1993. Keynes in the 1990s: A Return to Economic Sanity. Penguin, Harmondsworth.