Tuesday, May 19, 2020
Maiko Koga, Bank of Japan Koichi Yoshino, Bank of Japan Tomoya Sakata, Bank of Japan address Strategic Complementarity and Asymmetric Price Setting Among Firms.
ABSTRACT: Using a large panel of firm survey data from Japan (Tankan survey), we provide micro evidence of strategic complementarity in firms’ price setting. We find that a firm’s price adjustment is affected by its competitors’ pricing behaviour and that this adjustment is larger when the firm is lowering its price, which accords with the theoretical predictions of quasi-kinked demand. Our results also indicate that firms with greater pricing power tend to be less sensitive to their competitors’ behaviour. Finally, we observe that heightened demand uncertainty mitigates the effect of shifts in demand conditions on the likelihood of price adjustment.