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Pricing behavior of multiproduct firms : evidence from Norwegian PPI Data

Leinum, Ingrid Kristine; Riise, August
Master thesis
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URI
http://hdl.handle.net/11250/2432854
Date
2016
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  • Master Thesis [4207]
Abstract
According to New Keynesian theory, monetary policy works in the short run because of

micro level wage and price rigidities. There is broad consensus that nominal price rigidities

exist. Enhanced knowledge of the microeconomic mechanisms that generate such rigidities

is important as it might improve the design of macroeconomic models, and ultimately the

implementation of monetary policy. Although most macroeconomic models assume price

setting by single-product firms, most price adjustment decisions are in fact made by

multiproduct firms. Therefore, accounting for the multiproduct dimension is of great

importance as new insight might have implications for macroeconomic model design.

Recently, more researchers have focused on the multiproduct dimension both theoretically

and empirically. However, the field still remains largely unexplored.

The aim of this thesis is to examine the pricing behavior of multiproduct firms empirically.

Using a relatively unexplored dataset on Norwegian PPI data from 2004-2009 we present

descriptive statistics on the frequency, size and dispersion of price changes and analyze how

these statistics relate to the number of goods produced in a given plant. Furthermore, we

apply a discrete choice model for the price adjustment decision at the extensive margin and

look for evidence of within-firm synchronization in the timing of price changes. We also

look for evidence of scope economies in price adjustment leading to within-firm

synchronization.

These are our key findings: Firstly, the frequency, size and dispersion in the size of price

adjustments appear not to be systematically related to the number of goods produced.

Secondly, there is a large degree of within-firm synchronization in the timing of price

adjustments. Thirdly, we find in our data only partial support for the hypothesis of a common

cost for price adjustments that yields scope economies.

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