I will survive: Pricing strategies of financially distressed firms

Arbeitspapier

We consider a standard result of customer market theory: if firms have stable customer relations and face financial frictions, they may keep prices relatively high on their locked-in shoppers to maintain short-term profits at the expense of future market shares in times of low demand and vice versa in times of high demand. We extend this theoretical framework so that the countercyclical behaviour of price margins is strengthened by the expected persistence of demand and the procyclicality of competitive pressures. We test these predictions for Italian firms participating in the 2014 Wage Dynamics Network Survey. All things being equal, financially constrained firms charge higher markups when faced with low demand; this behaviour is more evident when demand is perceived as being persistent. Our findings suggest that the severity of financial constraints in Italy was one of the causes of the sustained growth of prices in 2010-2013.

Angaben zum Objekt

• ISBN: 978-92-899-3269-1
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 2164

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Single Equation Models; Single Variables: Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities ; Single Equation Models: Single Variables: Instrumental Variables (IV) Estimation ; Firm Behavior: Empirical Analysis ; Production, Pricing, and Market Structure; Size Distribution of Firms
• Thema: markups ; fiancial frictions ; customer market

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Duca, Ioana A. ; Montero, José Manuel ; Riggi, Marianna ; Zizza, Roberta
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2018

Weitere Informationen

• DOI: doi:10.2866/57287
• Handle: http://hdl.handle.net/10419/183346
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ