Monday, May 19, 2014

Mark-up Pricing in Western Europe: The Empirical Evidence

Below is a nation by nation review of the empirical evidence for the extent of mark-up pricing (or administered prices, or “average cost prices,” “full cost prices,” “normal cost prices,” or “cost-plus prices”) in Western Europe:
(1) the UK
Literature:
Downward, Paul. 1999. Pricing Theory in Post-Keynesian Economics: A Realist Approach. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Greenslade, Jennifer V. and Miles Parker. 2012. “New Insights into Price-Setting Behaviour in the UK: Introduction and Survey Results,” Economic Journal 122.558: F1–F15.

Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’ Prices Sticky?,” Oxford Economic Papers 52.3: 425–446.

“Mark-up Pricing in the UK,” February 15, 2014.

“Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 8,” January 23, 2014.
Hall, Walsh, and Yates (2000) report the results of a survey of 654 UK companies in 1995 carried out by the Bank of England, and mostly of large companies in manufacturing (68% of the survey), as well as some in services (13%), retailing (13%), and construction (6%) (Hall, Walsh, and Yates 2000: 426–428).

The survey asked firms if they recognised a specific “pricing theory as being important” for explaining their pricing behaviour. It was found that 47.1% of firms chose cost-based pricing as the second most important theory (the theory of constant marginal costs came first at 53.8%).

Greenslade and Parker (2012) report the results of a new survey of 693 UK firms (conducted in December 2007 and February 2008) chosen to be representative of the private sector economy of the UK as a whole, including manufacturing, electricity and gas supply, construction, services, and retail trade, but excluding public sector firms or those under regulatory price control (Greenslade and Parker 2012: F13–F14).

When asked how prices for their main product were determined, 68% of firms said that competitors’ prices were “very important” or “important” in determining price (Greenslade and Parker 2012: F9).

The second most important explanation was mark-up pricing, with variable mark-ups (58%) and constant mark-ups (44%) both being important (Greenslade and Parker 2012: F10).

Downward (1999, Chapter 8) presents a survey of 283 UK manufacturing enterprises (Downward 1999: 150–151). When asked whether the firm set its prices for its products by means of a mark-up on average costs, 63.7% of firms said either “very often” (29.9%) or “often” (33.8%). A further 17.3% said “sometimes.” Only 7% said “rarely,” and only 8.1% said “not at all” (Downward 1999: 160).

(2) Ireland
Literature:
Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.
http://ideas.repec.org/p/cbi/wpaper/7-rt-10.html

“Mark-up Pricing in Ireland,” November 22, 2013.
Keeney et al. (2010) report the results of a survey of 1000 Irish firms and finds that the largest type of pricing is mark-up pricing at 44% of firms. Other evidence from their paper, presented in my post here, suggests that the real percentage is higher than this, since when firms were asked how likely it was that they would adjust prices downwards in response to a negative demand shock, 66.5% of firms said that negative demand shocks were of little or no relevance to pricing decisions.

(3) Norway
Literature:
Langbraaten, Nina, Nordbø, Einar W. and Fredrik Wulfsberg. 2008. “Price-setting Behaviour of Norwegian Firms – Results of a Survey,” Norges Bank Economic Bulletin 79.2: 13–34.
http://www.norges-bank.no/en/about/published/publications/economic-bulletin/economic-bulletin-22008/price-setting-behaviour-of-norwegian-firms--results-of-a-survey/

“Mark-up Pricing in Norway,” November 23, 2013.
Langbraaten et al. (2008) cite a well-sampled survey of 725 firms throughout many sectors of the Norwegian economy that found that 69% of Norwegian businesses use mark-up pricing.

(4) Sweden
Literature:
Apel, Mikael, Friberg, Richard and Kerstin Hallsten. 2005. “Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms,” Journal of Money, Credit and Banking 37.2: 313–338.

“Mark-up Pricing in Sweden,” January 9, 2014.
Apel et al. (2005) provide data on price setting behaviour in Sweden, from a survey of about 600 private sector firms (Apel et al. 2005: 314) weighted to create a more representative sample of the Swedish economy (Apel et al. 2005: 316), but their study fails to directly ask firms how they set price.

Interestingly, when asked why they leave prices unchanged in response to small changes in demand, many firms said “it is better to leave the price unchanged as long as the costs do not change” (Apel et al. 2005: 323), which gives some support to the view that mark-up pricing is important.

(5) Iceland
Literature:
Ólafsson, Thorvardur Tjörvi, Pétursdóttir, Ásgerdur, and Karen Á. Vignisdóttir. 2011. “Price Setting in Turbulent Times: Survey Evidence from Icelandic Firms,” Working Paper Central Bank of Iceland
www.sedlabanki.is/lisalib/getfile.aspx?itemid=8891‎

“Mark-up Prices in Iceland,” November 25, 2013.
Ólafsson et al. (2011) cite a survey of 580 Icelandic firms and finds that mark-up pricing is the largest type of pricing at 45%. Evidence suggests that more mark-up prices are concealed in the other categories in the survey, so that the real percentage is higher than this.

(6) Netherlands
Literature:
Hoeberichts, Marco and Ad Stokman. 2006. “Price Setting Behaviour in the Netherlands: Results of a Survey,” ECB Working Paper Series No 607 (April)
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp607.pdf

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.

“Mark-up Pricing in the Netherlands,” May 2, 2014.
Hoeberichts and Stokman (2006) (reprinted with some changes in Hoeberichts and Stokman 2007) report the results of a survey conducted in May 2004, with 1,246 responses from firms, mainly in the Dutch manufacturing and services sectors (Hoeberichts and Stokman 2006: 7–8).

Of all firms surveyed, 59.3% reported that they used mark-up prices, with variable mark-up being the most widely used form (at 35.4%).

(7) Luxembourg
Literature:
Lünnemann, P. and T. Y. Mathä. 2006. “New Survey Evidence on the Pricing Behaviour of Luxembourg Firms,” ECB Working Paper Series No 617
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp617.pdf

Lünnemann, P. and T. Y. Mathä. 2007. “A Survey of Price Setting Practices of Luxembourg 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. 124–139.

“Mark-up Pricing in Luxembourg,” April 27, 2014.
Lünnemann and Mathä (2006) report the results of a survey on price setting behaviour in Luxembourg (see also Lünnemann and Mathä 2007).

The survey was conducted by the Banque centrale du Luxembourg in the second half of 2004 and involved responses from 367 firms in the construction, industry, services, trade and retail trade sectors, and the replies were adjusted to be representative of the Luxembourg economy as a whole (Lünnemann and Mathä 2006: 7–8).

Although the survey does not ask firms directly if they use mark-up pricing, there is a considerable amount of indirect evidence that this form of pricing is prevalent.

(8) Belgium
Literature:
Aucremanne, Luc and Martine Druant. 2005. “Price-Setting Behaviour in Belgium. What can be learned from an ad hoc Survey?,” ECB Working Paper Series No. 448
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp448.pdf

Aucremanne, Luc and Martine Druant. 2007. “Why Are Prices Sticky?: Evidence from an Ad Hoc Survey in Belgium,” 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. 69–82.

“Mark-up Pricing in Belgium,” March 26, 2014.
Aucremanne and Druant (2005) report the results of a survey of price setting behaviour by Belgian firms (see also Aucremanne and Druant 2007).

The survey was conducted in 2004 by the National Bank of Belgium and involved 1,979 firms in the industrial, construction, trade and services sectors, in a sample that should represent about 60% of Belgian GDP (Aucremanne and Druant 2005: 8, 10).

Fabiani et al. (2006: 18, Table 4) use the data from the survey and estimate that the number of firms using mark-up pricing is about 46%.

(9) Germany
Literature:
Stahl, Harald. 2005. “Price Setting in German Manufacturing: New Evidence from New Survey Data,” ECB Working Paper Series No. 561
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=868433

Stahl, Harald. 2007. “Price Setting in German Manufacturing: Evidence from New Survey Data,” 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. 97–109.

“Mark-up Pricing in Germany,” March 29, 2014.
Stahl (2005) reports the results of a survey on price setting behaviour by German manufacturing firms (see also Stahl 2007).

The survey was conducted in 2004 by the Ifo Institute for the Deutsche Bundesbank (Germany’s central bank) and involved 1,200 manufacturing firms (Stahl 2005: 9–10).

Mark-up pricing accounted for 73% of price setting.

(10) France
Literature:
Loupias, Claire and Roland Ricart. 2004. “Price Setting in France: New evidence from Survey Data,” ECB Working Paper Series No. 423
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp423.pdf

Loupias, Claire and Roland Ricart. 2007. “Asymmetries in Price Setting: Some Evidence from French Survey Data,” 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. 83–96.

“Mark-up Pricing in France,” March 28, 2014.
Loupias and Ricart (2004) report the results of a survey on price setting behaviour by French firms (see also Loupias and Ricart 2007).

The survey was conducted during the winter of 2003–2004 by the Banque de France and involved 1,662 manufacturing firms (Loupias and Ricart 2004: 8).

Though mark-up pricing is reported only at 36.9% of firms, it seems clear that the “competitors’ prices” category in the survey conceals other mark-up prices too, as mark-up pricing firms which follow “price leaders” often tend to report their pricing strategy in this category (as the evidence from Ireland and Norway suggests).

(11) Austria
Literature:
Kwapil, Claudia, Baumgartner, Josef and Johann Scharler. 2005. “Price-Setting Behavior of Austrian Firms,” ECB Working Paper Series no. 464
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp464.pdf

Kwapil, Claudia, Baumgartner, Josef and Johann Scharler. 2007. “Price Reactions to Demand and Cost Shocks: Survey Evidence from Austrian 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. 55–68.

“Mark-up Pricing in Austria,” March 24, 2014.
Kwapil, Baumgartner and Scharler (2005) report the results of a survey of price setting behaviour by Austrian firms (with a summary in Kwapil, Baumgartner and Scharler 2007).

The survey was conducted in January 2004 by the Austrian Institute of Economic Research (WIFO) and 873 firms participated, which were mainly in the manufacturing and manufacturing-related services sectors, and often producing intermediate goods (Kwapil, Baumgartner and Scharler 2005: 9–11).

Firms were asked to rank 11 different theories of why prices are generally inflexible, and cost-based pricing was ranked the third most important theory.

(12) Italy
Literature:
Fabiani, Silvia, Gattulli, Angela, and Roberto Sabbatini. 2004. “The Pricing Behaviour of Italian Firms: New Survey Evidence on Price Stickiness,” ECB Working Paper Series No. 333
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp333.pdf

Fabiani, Silvia, Gattulli, Angela, and Roberto Sabbatini. 2007. “The Pricing Behaviour of Italian Firms: New Survey Evidence on Price Stickiness,” 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. 110–123.

“Mark-up Pricing in Italy,” April 19, 2014.
Fabiani, Gattulli and Sabbatini (2004) report the results of a survey on price setting behaviour by Italian firms (see also Fabiani, Gattulli and Sabbatini 2007).

The survey was conducted in January 2003 and involved 333 industrial and service firms (Fabiani et al. 2004: 8), although about 66% were industrial firms. Furthermore, the survey was biased towards firms selling producer goods or wholesale goods (Fabiani et al. 2004: 13).

It was found that 63.1% of firms surveyed used mark-up pricing.

(13) Spain
Literature:
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.

“Mark-up Pricing in Spain,” May 7, 2014.
Álvarez and Hernando (2005) report the results of a survey conducted by a private company between May and September 2004 using a questionnaire prepared by the Banco de España, which 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).

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

(14) Portugal
Literature:
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.

Martins, Fernando. 2005. The Price Setting Behaviour of Portuguese Firms Evidence from Survey Data,” ECB Working Paper Series No 562 (December)
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp562.pdf

Martins, Fernando. 2007. “How Portuguese Firms set their Prices,” 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. 152–164.

“Mark-up Pricing in Portugal,” May 6, 2014.
Martins (2005) reports the results of a survey on price setting behaviour of firms in Portugal conducted between May and September 2004 by the Banco de Portugal, which involved 1,370 Portuguese firms, mainly from manufacturing (Martins 2005: 6).

Unfortunately, the survey did not ask firms directly if and how frequently they used mark-up pricing. Nevertheless, Fabiani et al. (2006: 18, Table 4) use the data from the survey and estimate that the number of firms using mark-up pricing is about 65%.
BIBLIOGRAPHY
Apel, Mikael, Friberg, Richard and Kerstin Hallsten. 2005. “Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms,” Journal of Money, Credit and Banking 37.2: 313–338.

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.

Aucremanne, Luc and Martine Druant. 2005. “Price-Setting Behaviour in Belgium. What can be learned from an ad hoc Survey?,” ECB Working Paper Series No. 448
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp448.pdf

Aucremanne, Luc and Martine Druant. 2007. “Why Are Prices Sticky?: Evidence from an Ad Hoc Survey in Belgium,” 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. 69–82.
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.

Downward, Paul. 1999. Pricing Theory in Post-Keynesian Economics: A Realist Approach. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Fabiani, S., Druant, M., Hernando, I., Kwapil, C., Landau, B., Loupias, C., Martins, F., Mathä, T., Sabbatini, R., Stahl, H. 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.

Fabiani, Silvia, Gattulli, Angela, and Roberto Sabbatini. 2004. “The Pricing Behaviour of Italian Firms: New Survey Evidence on Price Stickiness,” ECB Working Paper Series No. 333
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp333.pdf

Fabiani, Silvia, Gattulli, Angela, and Roberto Sabbatini. 2007. “The Pricing Behaviour of Italian Firms: New Survey Evidence on Price Stickiness,” 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. 110–123.

Greenslade, Jennifer V. and Miles Parker. 2012. “New Insights into Price-Setting Behaviour in the UK: Introduction and Survey Results,” Economic Journal 122.558: F1–F15.

Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’ Prices Sticky?,” Oxford Economic Papers 52.3: 425–446.

Hoeberichts, Marco and Ad Stokman. 2006. “Price Setting Behaviour in the Netherlands: Results of a Survey,” ECB Working Paper Series No 607 (April)
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp607.pdf

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.

Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.
http://ideas.repec.org/p/cbi/wpaper/7-rt-10.html

Kwapil, Claudia, Baumgartner, Josef and Johann Scharler. 2005. “Price-Setting Behavior of Austrian Firms,” ECB Working Paper Series no. 464
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp464.pdf

Kwapil, Claudia, Baumgartner, Josef and Johann Scharler. 2007. “Price Reactions to Demand and Cost Shocks: Survey Evidence from Austrian 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. 55–68.

Langbraaten, Nina, Nordbø, Einar W. and Fredrik Wulfsberg. 2008. “Price-setting Behaviour of Norwegian Firms – Results of a Survey,” Norges Bank Economic Bulletin 79.2: 13–34.
http://www.norges-bank.no/en/about/published/publications/economic-bulletin/economic-bulletin-22008/price-setting-behaviour-of-norwegian-firms--results-of-a-survey/

Loupias, Claire and Roland Ricart. 2004. “Price Setting in France: New evidence from Survey Data,” ECB Working Paper Series No. 423
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp423.pdf

Loupias, Claire and Roland Ricart. 2007. “Asymmetries in Price Setting: Some Evidence from French Survey Data,” 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. 83–96.

Lünnemann, P. and T. Y. Mathä. 2006. “New Survey Evidence on the Pricing Behaviour of Luxembourg Firms,” ECB Working Paper Series No 617
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp617.pdf

Lünnemann, P. and T. Y. Mathä. 2007. “A Survey of Price Setting Practices of Luxembourg 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. 124–139.

Martins, Fernando. 2005. The Price Setting Behaviour of Portuguese Firms Evidence from Survey Data,” ECB Working Paper Series No 562 (December)
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp562.pdf

Martins, Fernando. 2007. “How Portuguese Firms set their Prices,” 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. 152–164.

Ólafsson, Thorvardur Tjörvi, Pétursdóttir, Ásgerdur, and Karen Á. Vignisdóttir. 2011. “Price Setting in Turbulent Times: Survey Evidence from Icelandic Firms,” Working Paper Central Bank of Iceland
www.sedlabanki.is/lisalib/getfile.aspx?itemid=8891‎

Stahl, Harald. 2005. “Price Setting in German Manufacturing: New Evidence from New Survey Data,” ECB Working Paper Series No. 561
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=868433

Stahl, Harald. 2007. “Price Setting in German Manufacturing: Evidence from New Survey Data,” 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. 97–109.

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