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Strategic Complementarity and Asymmetric Price Setting among Firms

March 29, 2019
Maiko Koga*1
Koichi Yoshino*2
Tomoya Sakata*3

Abstract

Exploiting 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 behavior 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' behavior. Finally, we observe that heightened demand uncertainty mitigates the effect of shifts in demand conditions on the likelihood of price adjustment-evidence of wait and see pricing.

JEL Classification
D22, D84, E31, E32

Keywords
Demand uncertainty, Firm survey data, Price setting, Strategic complementarity

We thank Kosuke Aoki, Hibiki Ichiue, Ryo Jinnai, Naoya Kato, Takushi Kurozumi, Shinsuke Oyama, Toshitaka Sekine, Yosuke Uno, and other BOJ staff members for their comments and suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1Research and Statistics Department, Bank of Japan
    E-mail : maiko.koga@boj.or.jp
  2. *2Research and Statistics Department, Bank of Japan
    E-mail : kouichi.yoshino@boj.or.jp
  3. *3Research and Statistics Department, Bank of Japan
    E-mail : tomoya.sakata@boj.or.jp

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