Title

Multiproduct Firms and Price-Setting: Theory and Evidence from U.S. Producer Prices

Author(s)

Saroj Bhattarai Saroj Bhattarai (Pennsylvania State University)

Raphael Schoenle Raphael Schoenle (Brandeis University)

Abstract

In this paper, we establish three new facts about price-setting by multi-product firms and contribute a model that can match our findings. On the empirical side, using micro-data on U.S. producer prices, we first show that firms selling more goods adjust their prices more frequently but on average by smaller amounts. Moreover, the higher the number of goods, the lower is the fraction of positive price changes and the more dispersed the distribution of price changes. Second, we document substantial synchro- nization of price changes within firms across products and show that synchronization plays a dominant role in explaining pricing dynamics. Third, we find that within-firm synchronization of price changes increases as the number of goods increases. On the theoretical side, we present a state-dependent pricing model where multi-product firms face both aggregate and idiosyncratic shocks. When we allow for firm-specific menu costs and trend in ation, the model matches the empiricalfindings.

Creation Date

2010-07

Section URL ID

CEPS

Paper Number

211

URL

https://gceps.princeton.edu/wp-content/uploads/2017/01/211schoenle.pdf

File Function

Jel

E30; E31; L11

Keyword(s)

Multi-product firms; Number of Goods; State-dependent pricing; U.S. Producer prices, United States

Suppress

false

Series

3