Wednesday, May 7, 2014

Mark-up Pricing in Spain

Álvarez and Hernando (2005) report the results of a survey on price setting behaviour of firms in Spain (see also Álvarez and Hernando 2007).

The research was conducted by a private company between May and September 2004 using a questionnaire prepared by the Banco de España, and involved 2,008 firms from the manufacturing, energy, trade, hotel and restaurant, transport and communications sectors (Álvarez and Hernando 2005: 8). These sectors represent about 51.3% of Spanish Gross Value Added (GVA) (Álvarez and Hernando 2005: 8).

The median firm changes the price of its main product once a year (Álvarez and Hernando 2005: 20).

The firms were asked to assess the importance of nine theories explaining price rigidity and rank these theories with a score from (1) (unimportant) to (4) (very important).

The theories were ranked in the following order from most important to least important:
(1) Implicit contracts

(2) Coordination failure

(3) Explicit contracts

(4) Temporary shocks

(5) Quality signal

(6) Pricing points

(7) Menu costs

(8) Change non-price factors

(9) Information costs.
These results are in line with other surveys.

While the survey fails to ask firms whether they use mark-up pricing, nevertheless the results strongly suggest that this form of price setting is important: for example, the survey results indicate that changes in costs of production are the main cause of price increases (Álvarez and Hernando 2005: 36).

Fabiani et al. (2006: 18, Table 4) report that the percentage of Spanish firms using mark-up pricing is 52%, but it is unclear where this data comes from.

Álvarez, Luis J. and Ignacio Hernando. 2005. “The Price Setting Behaviour of Spanish Firms Evidence from Survey Data,” ECB Working Paper Series No. 538 (October)

Álvarez, Luis J. and Ignacio Hernando. 2007. “Pricing Behavior of Spanish 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. 165–181.

Fabiani, S., M. Druant, I. Hernando, C. Kwapil, B. Landau, C. Loupias, F. Martins, T. Mathä, R. Sabbatini, H. Stahl and A. Stokman. 2006. “What Firms’ Surveys tell us about Price-Setting Behavior in the Euro Area,” International Journal of Central Banking 2.3: 3–47.

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