Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices

Saroj Bhattarai and Raphael Schoenle

No 15, Working Papers from Brandeis University, Department of Economics and International Business School

Abstract: In this paper, we establish three new facts about price-setting by multi-product firms and contribute a model that can explain our findings. On the empirical side, using micro-data on U.S. producer prices, we first show that firms selling more goods adjust their prices more frequently but on average by smaller amounts. Moreover, the higher the number of goods, the lower is the fraction of positive price changes and the more dispersed the distribution of price changes. Second, we document substantial synchronization of price changes within firms across products and show that synchronization plays a dominant role in explaining pricing dynamics. Third, we find that within-firm synchronization of price changes increases as the number of goods increases. On the theoretical side, we present a state-dependent pricing model where multi-product firms face both aggregate and idiosyncratic shocks. When we allow for firm-specific menu costs and trend inflation, the model matches the empirical findings.

Keywords: Multi-Product Firms; Number of Goods; State-Dependent Pricing; U.S. Producer Prices (search for similar items in EconPapers)
JEL-codes: E30 E31 L11 (search for similar items in EconPapers)
Pages: 86 pages
Date: 2010-12
New Economics Papers: this item is included in nep-bec, nep-com, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP15.pdf First version, 2010 (application/pdf)
http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP15R.pdf Revised version, 2011 (application/pdf)

Related works:
Journal Article: Multiproduct firms and price-setting: Theory and evidence from U.S. producer prices (2014)
Working Paper: Multiproduct firms and price-setting: theory and evidence from U.S. producer prices (2011)
Working Paper: Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices (2011)
Working Paper: Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:brd:wpaper:15

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