Friday, May 2, 2014

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.

Hoeberichts, Marco and Ad Stokman. 2006. “Price Setting Behaviour in the Netherlands: Results of a Survey,” ECB Working Paper Series No 607 (April)

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.

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