Pricing Behaviour of Croatian Companies: Results of a Firm Survey and a Comparison with the Eurozone

Published: 20/11/2012
Publication Working Papers
Issue W - 36
Authors Andreja Pufnik and Davor Kunovac
Date March 2013
JEL D40, E31, L11
ISSN 1334-0131

Keywords

price setting, price stickiness, survey data

Summary

This paper aims to clarify the issue of price stickiness, i.e. the relatively slow adaptation of prices to changes in the economic environment. The median enterprise in Croatia changes the price of its main product less frequently than once a year, i.e. more rarely than the median enterprise in the eurozone (once a year). Prices are more flexible downwards in the event of major demand shocks, whereas in the event of major changes in costs it is the other way round. The implicit contract theory and the cost-based pricing theory are the most important elements for the explanation of price stickiness in Croatia. It was shown that price stickiness is strongly related to the efforts to build long-term business relationships with customers, and to customer preferences for stable nominal prices. Increased demand and higher costs (especially raw material prices and wages) are the main factors influencing decisions on price increases. Moreover, shocks resulting in a change in trading conditions (reduced demand and a lower price by a competitor) are the key driving factors of price decreases.