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Price Adjustment at the Firm Level: A Theoretical and Empirical Analysis

Werner Smolny
Small Business Economics
Vol. 17, No. 3 (Nov., 2001), pp. 167-184
Published by: Springer
Stable URL: http://www.jstor.org/stable/40229179
Page Count: 18
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Price Adjustment at the Firm Level: A Theoretical and Empirical Analysis
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Abstract

The price-setting behaviour of firms and the adjustment of prices with respect to changes in the economic environment is relevant for the short-run analysis of the business cycle as well as for the analysis of the long-run development of the market. In this paper, a theoretical model of the price adjustment of the firm is developed and estimated with a unique panel of firm-level data from West German manufacturing. The empirical results reveal that capacity constraints significantly affect the price setting. The price and quantity adjustment also depends significantly on variables that are related to competition.

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