THE PRICE-SETTING BEHAVIOUR
OF ROMANIAN FIRMS
– survey evidence –
Ştefania Cristina Iordache1
Mihaela Luiza Pandioniu2
Abstract
The price-setting behaviour of firms is relevant for the functioning and efficacy of the monetary
policy transmission mechanism. Looking at the findings of a survey conducted among domestic
non-financial corporations, this paper aims to examine price setting in the domestic market, as
well as companies’ response to various economic shocks. The results reveal that Romanian firms
perceive the domestic market as highly competitive and specialised, defined by long-term customer
relationships. Across the economy, most companies apply a time-dependent pricing policy, the
actual price adjustments occurring solely in the event of semnificative economic environment
changes. Prices are more likely to react to supply shocks, an increase in costs of raw materials being
fairly quickly transferred to prices. On the other hand, companies’ response to a negative demand
shock varies across sectors: manufacturing companies opt for decreasing their output level instead
of adjusting their prices as is the case with companies operating in agriculture, trade and services,
whereas in the mining and construction sectors there is no clearly identifiable strategy.
Moreover, the survey includes a subsection dedicated to companies’ wage policy; the answers
reveal the existence of nominal wage rigidity, yet a fairly limited recourse to automatic wage
indexation schemes.
Key words: survey, price stickiness, wage policy
JEL classification codes: C83, D22, E31
The authors would like to thank Mirela Petrache for developing the software application used
for implementing the survey and Elena Iorga, Mădălina Militaru and Răzvan Stanca for their
suggestions and comments expressed while the paper was prepared.
1
Ştefania Cristina Iordache, National Bank of Romania, Economics Department, e-mail: [email protected]
2
Mihaela Luiza Pandioniu, National Bank of Romania, Economics Department, e-mail: [email protected]
Contents
1. Introduction........................................................................................................... 3
2. Survey design........................................................................................................ 4
3. Market characteristics........................................................................................... 9
4. Price setting ....................................................................................................... 12
5. Price reviews versus price changes..................................................................... 14
6. Price stickiness.................................................................................................... 19
7. Wage policy......................................................................................................... 23
8. Conclusions......................................................................................................... 27
References............................................................................................................... 29
Appendix................................................................................................................. 31
1. Introduction
The price-setting behaviour of companies is a key element to the functioning and the efficacy
of the monetary policy transmission mechanism. Price stickiness, namely their slow response to
changes in the economic environment, has a crucial impact on the implementation of monetary
policy, as it influences the pass-through of monetary impulses to the real economy and affects the
speed at which monetary authorities succeed in returning inflation within the variation band of the
target in the aftermath of economic shocks. Given that nominal rigidities are a major component
of the architecture of the macroeconomic models underlying monetary policy decisions, gaining
a better understanding of the nature of frictions causing the short-term non-neutrality of monetary
policy effects is of the essence for any central bank.
The best way to study price stickiness is by taking a microeconomic approach whereby the
individual behaviour of companies is examined.
The purpose of the paper is to derive information on price setting, the frequency of price changes
and their determinants, as well as on companies’ reactions to various economic shocks with a
view to eventually assessing both the degree of price stickiness and its sources. The information
needed to investigate the aforementioned issues was collected by means of a survey conducted in
September-November 2013 among domestic non-financial corporations.
The idea of using a survey to examine the pricing strategy of firms was pioneered as early as 1991 in
the USA by Blinder. Based on the information derived from similar surveys, which were uniformly
designed by the Inflation Persistence Network (IPN), a research network of the Eurosystem, a
number of papers analysing the pricing policy of companies in various euro area Member States
were published during 2004-2006 as follows: Fabiani et al. (2004), examining the price-setting
behaviour of firms in Italy, Loupias and Ricart (2004) – France, Kwapil et al. (2005) – Austria,
Aucremanne and Druant (2005) – Belgium, Alvarez and Hernando (2005) – Spain, Stahl (2005) –
Germany, Martins (2006) – Portugal, Hoeberichts and Stokman (2006) – the Netherlands, as well
as Lünnemann and Mathä (2006) – Luxembourg.
As far as Romania is concerned, a paper on the same topic was authored by Copaciu et al. (2010),
drawing on a survey conducted in the autumn of 2006 among 377 respondent companies operating
in agriculture, manufacturing, the energy industry, construction, trade and the services sector.
With a view to assessing the changes that have occurred in the price-setting mechanism as compared
with the pre-crisis period, the present survey asked again some of the questions included in the
survey implemented by Copaciu et al. (2010).
The use of a qualitative survey to determine the price-setting behaviour of companies has a number
of advantages. Specifically, it offers the possibility to ask firms directly about the features of their
pricing policy, allows for a comprehensive analysis of the price-setting process by a distinct
examination of its two separate stages (price review and price change respectively) and, last but
not least, it facilitates the identification of the causes of price stickiness, as quantitative data can
merely indicate its presence.
3
Nevertheless, it cannot be ignored that such a survey involves certain risks and caution is needed
when interpreting conclusions as, on the one hand, companies’ answers do not always reflect
reality and, on the other hand, they are not necessarily relevant to the identification of behavioural
patterns, given that the latest experience takes precedence over the previous ones.
The paper is organised as follows. Section 2 provides details on the technical features of the survey,
namely the criteria for selecting the sample, its representativeness and the questionnaire. Section 3
describes surveyed companies’ perception of the market in which they operate, chiefly assessing
their degree of specialisation, competition, customers and the type of business relationship they
build with them. Sections 4 and 5 expound on the most important characteristics of the pricing
strategy, examining the two stages of price setting, namely price review and price change, while
Section 6 explores price stickiness via testing several economic theories in dedicated literature.
Section 7 briefly touches on wages’ contribution to price setting, whereas the last section offers the
main concluding remarks.
2. Survey design
The survey on the price-setting mechanism covered non-financial corporations that operate mainly
in the domestic market and was conducted in cooperation with the National Institute of Statistics
(NIS) during September-November 2013. As part of this collaboration, the latter institution was
in charge of determining the survey population, selecting the sample, addressing non-responses
and extending results, while the National Bank of Romania conducted the survey (it identified the
companies included in the sample, sent the questionnaires and validated the answers), aggregated
and analysed the results.
Sample design
The sample was built using stratified random sampling and the strata were defined based on:
(i) the company’s main economic activity according to the NACE Rev. 2 2-digit level division, in
line with the breakdown in Table 1, and (ii) the firm’s size, measured by the average number of
employees:
• size class 1 (small-sized companies): less than 50 employees;
• size class 2 (medium-sized companies): 50 – 249 employees;
• size class 3 (large companies): at least 250 employees.
4
Table 1. Economic activities included in the survey population
Economic activity
NACE Rev. 2 code
Agriculture, forestry and fishing
01, 02, 03
Mining and quarrying
05, 06.1, 07, 08, 09
Manufacture of food products; manufacture of beverages
10, 11
Manufacture of tobacco products
12
Manufacture of textiles; manufacture of wearing apparel; manufacture of leather and
related products
13, 14, 15
Manufacture of wood and of products of wood and cork, except furniture; manufacture
of articles of straw and plaiting materials; manufacture of paper and paper products;
manufacture of furniture
16, 17, 31
Printing and reproduction of recorded media
18
Manufacture of coke and refined petroleum products
19
Manufacture of chemicals and chemical products; manufacture of basic pharmaceutical
products and pharmaceutical preparations; manufacture of rubber and plastic products
20, 21, 22
Manufacture of other non-metallic mineral products
23
Manufacture of basic metals; manufacture of fabricated metal products, except
machinery and equipment
24, 25
Manufacture of computer, electronic and optical products; manufacture of electrical
equipment; manufacture of machinery and equipment n.e.c.; repair and installation of
machinery and equipment
26, 27, 28, 33
Manufacture of motor vehicles, trailers and semi-trailers; manufacture of other transport
equipment
29, 30
Other manufacturing
32
Construction of buildings; civil engineering; specialised construction activities
41, 42, 43
Wholesale and retail trade and repair of motor vehicles and motorcycles
45
Wholesale trade, except of motor vehicles and motorcycles
46
Retail trade, except of motor vehicles and motorcycles
47
Land transport and transport via pipelines; water transport; air transport; warehousing
and support activities for transportation; other postal and courier activities
49 (excl. 49.1), 50, 51,
52, 53.2
Accommodation; food and beverage service activities
55, 56
Publishing activities; motion picture, video and television programme production, sound
recording and music publishing activities; programming and broadcasting activities
58, 59, 60
Telecommunications; computer programming, consultancy and related activities;
information service activities
61, 62, 63
Other services
68, 69, 70, 71, 72, 73,
74, 75, 79, 80, 81, 82,
90, 92, 93, 95, 96
5
With a view to determining the best sample size, Neyman allocation was employed, implying the
optimisation of the number of items selected from each stratum depending on the total sample size
and the variability of observations within each stratum (standard deviation).
The initial population was determined by excluding the economic activities in Table 2 from the
NACE Rev. 2 statistical classification.
Table 2. Economic activities excluded from the survey population
Economic activity
Extraction of natural gas
NACE Rev. 2 code
06.2
Electricity, gas, steam and air conditioning supply
35
Water collection, treatment and supply
36
Sewerage
37
Waste collection, treatment and disposal activities; materials recovery
38
Remediation activities and other waste management services
39
Passenger rail transport, interurban
49.1
Postal activities under universal service obligation
53.1
Financial service activities, except insurance and pension funding
64
Insurance, reinsurance and pension funding, except compulsory social security
65
Activities auxiliary to financial services and insurance activities
66
Rental and leasing activities
77
Employment activities
78
Public administration and defence; compulsory social security
84
Education
85
Human health activities
86
Residential care activities
87
Social work activities without accommodation
88
Libraries, archives, museums and other cultural activities
91
Activities of membership organisations
94
The survey population was established by the NIS based on companies’ financial statements
and mainly comprised firms with at least 20 employees. Nonetheless, with a view to ensuring
representativeness of results economy-wide, the survey population also included very small
companies (with less than 20 employees) in the case of agriculture, trade, construction and services.
For this purpose, each NACE Rev. 2 division had a 75 percent minimum threshold for turnover
representativeness.
6
Table 3. Initial population and survey population
Economic
sector
Initial population
(no. of firms)
Agriculture
Mining
Manufacturing
Trade
Construction
Services
Survey population Minimum number
Turnover
(no. of firms)
of employees
representativeness
(%)
14,897
2,618
9
76
1,044
153
20
97
48,706
9,368
20
91
168,110
14,465
6
76
42,679
6,097
13
75
160,276
28,794
4
78
The sample size was calculated by requiring a desired precision of the estimator for the turnover
volume at NACE level division of 0.045, at a 95 percent confidence level. Moreover, a stratum was
decided to include at least five companies, and atypical firms, as well as size class 3 companies
(with at least 250 employees) were subject to a comprehensive survey.
Table 4. Sample structure
Economic
sector
Agriculture
Number
of firms
Turnover
(lei bn.)
Number
of employees
187
10
44,422
42
25
48,159
Manufacturing
1,713
198
600,896
Trade
1,771
196
239,295
492
25
104,663
Services
1,019
59
369,208
TOTAL
5,224
513
1,406,643
Mining
Construction
The broad sample included more than 5,000 companies whose turnover amounted to approximately
lei 500 billion and which counted 1.4 million employees in 2012. The survey had a high response
rate, as 76 percent of the firms in the sample (which accounted for 82 percent of the turnover)
answered the questionnaire.
7
Table 5. Response rate
Economic
sector
Agriculture
Number of firms
Sample
Respondents
Turnover (lei bn.)
Response
rate (%)
Sample
Respondents
Response
rate (%)
187
157
84
10.45
10.08
96
42
33
79
25.15
22.32
89
Manufacturing
1,713
1,208
71
197.87
159.05
80
Trade
1,771
1,420
80
195.82
161.14
82
492
381
77
24.63
20.69
84
Services
1,019
771
76
58.91
45.92
78
TOTAL
5,224
3,970
76
512.82
419.19
82
Mining
Construction
Looking at the 2012 turnover, the breakdown of surveyed companies by size shows that large
companies prevail in industry, accounting for over 60 percent of total revenues in manufacturing
and for more than 90 percent of those posted by mining respectively. The other economic sectors
comprise mostly small- and medium-sized companies, pointing to low concentration, with an
impact on the degree of perceived competition reported by firms and their price-setting capacity.
Table 6. Turnover breakdown by sector
Economic
sector
Companies (%)
Small-sized
Medium-sized
Large
Agriculture
23
40
37
Mining
1
6
93
Manufacturing
8
26
66
Trade
25
39
36
Construction
25
45
30
Services
27
31
42
TOTAL
19
33
49
The questionnaire
The questionnaire consists of five sections. The first two contain identification data for companies
and the persons filling out the questionnaire. For this purpose, the aforementioned sections collect
information on companies’ main business activity, share capital, turnover and average number of
employees, as well as on the identity of the person actually answering the questionnaire, including
his/her position in the company.
8
The third section gathers information on the main product sold by the firms on the domestic market
and the characteristics of the market in which they operate: the degree of concentration and of
competition, the drivers of product competitiveness, the main customers and the type of business
relationship they build with them.
The fourth section assesses the price-setting mechanism with a view to identifying the actual
price‑setters, the prevalent pricing strategy (whether the price is set as a margin over costs or it depends
on the price charged by the company’s main competitors a.s.o.), the policy governing price reviews and
changes respectively, the determinants of price adjustments, as well as the causes of price stickiness.
The last section of the questionnaire refers to companies’ wage policy, touching also on the relation
between inflation and wages.
3. Market characteristics
Price setting by companies depends on the characteristics of the market in which they operate: the
extent of specialisation of market operators, the degree of market concentration, the main customers
and the type of business relationship that companies build with them. In order to gain a better picture
in this respect, the first part of the questionnaire focuses on the above-mentioned issues.
Main product and customers
Given that the questionnaire deals with the
strategy for setting and adjusting the price of the
main product sold on the domestic market, it is
necessary to gauge its relevance to the company
in terms of the earnings generated.
Chart 1. Share of the main product
in the turnover volume
100
%
80
total economy
services
construction
trade
manufacturing
mining
agriculture
60
For this purpose, the first question refers to the
share of revenues stemming from this product
40
in the 2012 turnover. As Chart 1 shows, the
income generated by the main product sold
20
on the domestic market accounts for over
0
60 percent of the turnover economy-wide,
corroborating its relevance and also indicating
a high degree of specialisation. The percentage
is significantly lower than that reported by
Copaciu et al. (2010) in their paper, which
specified that the income stemming from the main product sold on the domestic and non-domestic
markets held 84 percent of the turnover. According to the same paper, customers were largely
other firms (71 percent), while only 27 percent of respondents identified households as their main
customer. 2013 shows a somewhat similar picture, except for the wider share held by small- and
medium-sized companies in firms’ customer base (from approximately 37 percent to 45 percent).
9
As concerns the type of business relationship that companies build with their customers, 64 percent
of firms claim that they generally have long-term relationships with the latter, albeit to a smaller
extent than in the pre-crisis period.
Chart 2. Customers and companies’ business relationship with them
Type of business relationship
Breakdown of companies’ customers
%
76
large companies
(at least 250 employees)
69
medium-sized companies
(50-249 employees)
total
economy
64
20
40
%
households
29
small-sized companies
(less than 50 employees)
61
0
large
companies
13
general
government
6
60
long-term
80
100
occasional
SMEs
45
companies
within
the group
7
Moreover, long-term contracts account for over 50 percent of the 2012 turnover economy-wide,
with companies in agriculture holding the largest share, i.e. 59 percent. A detailed analysis of this
sector shows that large companies take an above-average weight (24 percent), amid the prevalence
of small- and medium-sized companies among producers, pointing to the latter’s weaker bargaining
power in setting prices.
The wide share held by corporate customers in companies’ main customers and the presence of
stable business relationships, including long-term contracts, already provide a first clue to the
significant part played by implicit1 and explicit contracts in explaining the sluggish price adjustment
following economic shocks.
Competitiveness
Market competition is a key factor shaping companies’ pricing strategy. Assuming a loosening
of the perfect competition hypothesis (firms have no control over price setting, the price being
equal to the market price), price stickiness is compatible with a monopolistically competitive
environment, which allows each company to set its own prices.
In order to gauge the degree of competition, the questionnaire included two questions. Specifically,
the former referred to the market position of the respective company at a domestic level depending
on its market share, whereas the latter dealt with the extent to which surveyed companies actually
perceived they faced price competition.
1
10
Unwritten contracts based on long-term business relationships. See Section 6. – “Price stickiness” for details on
the theory of implicit contracts.
Almost all respondents answered that they experienced strong and overly strong competition for
the main product and only 27 percent of them believed they were among the top ten companies
ranked by their market shares relative to the main product market, which is in line with the high
degree of perceived competition they reported. By contrast, Fabiani et al. (2004) showed that
in Italy some 80 percent of the surveyed firms stated they were among the top ten competitors
on the relevant market, with the sample including companies with more than 50 employees.
The breakdown by economic sector in Romania indicated that slightly higher percentages were
posted by industry, i.e. 30 percent of the mining companies and 37 percent of the manufacturing
companies respectively, the said firms also experiencing, as a matter of fact, relatively lower market
competition. Moreover, it should not come as a surprise that the degree of perceived competition is
inversely proportional to company size, with small-sized companies reporting intense competition
to a larger extent.
The abovementioned findings are similar to those of the paper by Copaciu et al. (2010), which
showed that the highly competitive environment was pointed to by both the significant share of
companies with at least 20 competitors on the market, i.e. approximately 67 percent, and the fact
that most firms reported elastic demand for the main product. Nevertheless, the current survey
hints at a fall in the share of companies considering that the demand for their main product is
elastic, i.e. 33 percent versus 40 percent in 2005.
As regards the key elements differentiating companies from their competitors, they rank as follows
across all economic sectors: the quality, the price and the existence of long-term relationships.
It is of interest to note the ever-increasing role played by non-price factors in assessing product
competitiveness.
Table 7. Determinants of the main product’s competitiveness on the domestic market
Quality
Price
Long-term
relationships
with
customers
Agriculture
3.6 (0.6)
3.3 (0.7)
3.2 (0.9)
3.0 (0.9)
2.6 (0.9)
0.5 (1.2)
Mining
3.7 (0.5)
3.4 (0.7)
3.3 (1.0)
3.2 (0.7)
2.4 (0.8)
1.0 (1.6)
Manufacturing
3.5 (0.7)
3.3 (0.8)
3.1 (0.9)
3.1 (0.8)
2.6 (0.9)
0.6 (1.3)
Trade
3.4 (0.7)
3.4 (0.7)
3.1 (1.0)
3.0 (0.9)
2.6 (0.9)
0.6 (1.0)
Construction
3.6 (0.8)
3.4 (0.7)
3.1 (1.0)
3.0 (0.9)
2.6 (1.0)
0.4 (1.3)
Services
3.5 (0.8)
3.3 (0.8)
3.2 (0.9)
2.9 (1.0)
2.7 (0.9)
0.5 (1.2)
Total economy
3.5 (0.7)
3.3 (0.8)
3.1 (0.9)
3.0 (0.9)
2.7 (0.9)
0.5 (1.2)
Economic
sector
Delivery
period
Degree of
product
differentiation
Other*
The figures represent the mean score, the standard deviation being given in parentheses.
Note: Companies indicated the importance of each determinant by rating them from 1 (unimportant) to 4 (very
important).
* 0 was assigned to companies which did not identify other factors.
11
In this vein, recent papers such as that by Benkovskis and Wörz (2013) examine the performance
of exports of emerging economies, observing a substantial increase in their market shares
concurrently with deteriorating price competitiveness. In this context, the degree of correlation
between export dynamics (rapid growth) and the movements in the real effective exchange rate
(real appreciation trend), which economic theory posited to be high, empirically proved to stand
significantly lower. Thus, the said authors explain the advance in exports by developing a new
measure of competitiveness that also includes non-price factors such as quality.
4. Price setting
Who sets the price?
About half of the surveyed companies set prices
by bargaining with their customers, and only
43 percent have full price-setting power.
The picture is significantly different from that
of 2005 (the reference period in the previouslyconducted survey2), when over 60 percent of
the firms set prices directly and merely a third
of them resorted to bargaining. This change in
companies’ price-setting behaviour probably
mirrors, to a large extent, their adapting to the
severe fall in demand, against the backdrop of the
recent financial and economic crisis, as well as of
the structural changes affecting the economy.
Chart 3. Price setting
%
direct
bargaining
49
43
5
the
company
itself
the parent
company
3
the price is
regulated
In agriculture, the share of companies that set their prices by bargaining is considerably wider,
i.e. approximately 80 percent, given the prevalence of long-term contracts with various large
companies that have stronger bargaining power. Conversely, as expected, trading companies set
prices autonomously, as the increased fragmentation of their customer base (which consists chiefly
of population and SMEs) and the lower frequency of stable commercial relationships secure their
dominant position with respect to their business relationships.
How is the price set?
At the level of the economy as a whole, the price is primarily set as a (fixed and/or variable) margin
over the variable cost per unit of output. The share of firms applying this pricing strategy is higher
than in the pre-crisis period (63 percent in 2013 against around 40 percent in 2005), when prices
were mostly set according to the market price. Furthermore, 54 percent of companies set their
The survey referred to in the paper by Copaciu et al. (2010) was conducted during October-November 2006 and
the questionnaire used 2005 as reference period.
2
12
prices depending on the developments in the prices of their main competitors, whereas merely
11 percent of them use indexation schemes.
Most small-sized companies and those operating in agriculture, trade and the services sector take
into account the prices charged by their main competitors when setting their own prices, amid the
overly strong market competition, particularly since only few of them claim they are among the
top ten firms on the main product market.
Chart 4. Pricing strategy
Economic sectors
Total economy
90
%
%
90
75
75
60
60
45
45
30
30
15
15
0
a
b
c
a) depending on the prices of the main competitors
b) margin over costs
c) indexation
1
2
3
4
5
6
0
1 - agriculture, 2 - mining, 3 - manufacturing,
4 - construction, 5 - trade, 6 - services
An important feature of the price-setting mechanism is price differentiation by the quantity
purchased, market conditions and seasonality.
In 2013, selling prices of most
companies and particularly those
having business relationships with
other firms differed mainly in terms
of the quantity purchased, as well as
of market conditions, especially in the
construction sector.
It is worth noting that approximately
75 percent of the surveyed companies
base their pricing decisions on a
comprehensive
information
set
covering both the recent past and
forecasts, a similar percentage being
mentioned in the paper by Copaciu et
al. (2010).
Chart 5. Information underlying
pricing decisions
100
%
80
60
40
20
0
2013
recent past
2005
forecasts
both
13
This fact directly impacts the design of the macroeconomic models underlying monetary policy.
In spite of being largely used for monetary policy analysis in dedicated literature, models such as
the New Keynesian Phillips curves, which are based on the assumption of perfectly rational and
strictly forward-looking economic agents, cannot account for the relative persistence of inflation
seen in practice. The explanation lies in companies using both historical data deemed relevant
and forecasts in setting prices, as confirmed, in Romania’s case, by Copaciu et al. (2010) as well.
Consequently, macroeconomic models that include hybrid versions of the Phillips curve capture
inflation developments better.
5. Price reviews versus price changes
How is the price reviewed?
Empirical evidence has shown that firms do
not adjust their prices on an ongoing basis,
in response to any change in economic
conditions. With a view to modelling such
behaviour, two theories were put forward
in dedicated literature: price reviews are
carried out regularly (time-dependent
pricing rules) or depending on the economic
situation at a given point in time (statedependent pricing rules). The former rules
imply a higher degree of price stickiness,
given that under such rules price reviews
and implicitly price changes are undertaken
at dates explicitly set forth by the company
and not as an immediate response to the
change in economic conditions.
Chart 6. Price reviewing policy
60
%
50
40
30
53
20
38
10
0
9
timedependent
statedependent
both
Over 50 percent of companies across the economy pursue a time-dependent pricing policy, a
significantly wider share than in 2005, when merely 15 percent of firms reviewed their prices
regularly.
Moreover, survey findings point towards a positive correlation between company size and
preference for a time-dependent pricing policy, as shown also by Copaciu et al. (2010).
14
About 75 percent of large companies pursued such a pricing strategy either exclusively or in
conjunction with other state-dependent pricing rules.
Chart 7. Price reviews according to company size
%
100
timedependent
80
statedependent
both
60
40
51
20
67
55
40
37
9
0
25
9
7
small-sized companies
medium-sized companies
large companies
Concerning the frequency of price reviews, this survey does not reveal the prevalence of a specific
time interval across the economy, given the roughly equal percentages of the three frequencies
indicated in the questionnaire – at least once a month, four times a year and twice or once a year.
Differences are visible in agriculture and trade, where firms tend to review their prices at least
once a month (closely linked to the high degree of competition facing these sectors), as well as in
services, where most companies report two or only one review per year, in line with the implicitly
lower competition and the seasonality of certain service activities (such as the Easter period, the
winter holidays, the summer vacation).
Chart 8. The frequency of price reviews
%
37
26
31
45
24
24
14
42
0
25
at least once a month
50
four times a year
37
6
Manufacturing
5
Mining
7
75
twice or once a year
Trade
Construction
30
35
30
Services
4
39
30
25
7
11
32
30
27
Total economy
28
22
46
6
Agriculture
100
less frequently
15
How is price changed?
Although most firms review their prices on a regular basis, prices are adjusted only following
relevant changes in the economic environment. Thus, price adjustments occur at two stages. The
first stage concerns the regular review conducted at predefined time intervals, while the actual
change takes place at a second stage, provided there is a significant difference in price from the
level indicated in the review.
Chart 9. Price changing policy
75
%
50
25
51
61
42
7
0
40
37
agriculture
on a regular basis
55
51
9
2
mining
manufacturing
52
41
54
40
8
4
construction
trade
in case of changes in the economic environment
40
6
services
both strategies
Similarly to the findings regarding price reviews, large companies display a more pronounced
stickiness also relative to price changes, taking mainly a time-dependent approach (63 percent).
The findings show actually a feature of the large companies’ administrative structure, i.e. that they
normally have a specific department for price reviews and changes, with a strict schedule, where
deviations occur only in case of major cost shocks.
The two-stage process of price adjustment is also confirmed by price changes occurring significantly
less frequently than price reviews.
Around 43 percent of companies change their prices twice or once a year, while only 25 percent
change their prices at least once a month and 22 percent four times a year. At sectorial level, a higher
frequency of price changes is recorded in the agriculture and trade sectors, where respectively
37 percent and 40 percent of companies change their prices at least once a month. By company
size, large companies post a significantly higher degree of price stickiness, half of them changing
their prices twice or once a year.
16
Chart 10. The frequency of price changes
%
27
22
20
43
18
52
40
34
29
19
30
24
62
37
0
18
25
at least once a month
37
50
four times a year
4
Trade
Construction
15
49
31
Services
10
22
26
Total economy
8
8
Manufacturing
7
Mining
8
Agriculture
75
twice or once a year
100
less frequently
With respect to the time-dependency hypothesis of price changes, survey results do not indicate
a clear seasonality, 84 percent of firms declaring that their price adjustments do not take place
at a specific month. Such a seasonality is clearly typical of agriculture, where one third of the
companies declare that they change prices mainly in Q2 and Q3.
Chart 11. Do price changes follow a seasonal pattern?
Agriculture
Total economy
90
%
%
12
75
10
60
8
45
6
84
30
4
15
2
0
16
No
Yes
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
0
Which are the driving factors of price changes?
Supply-side factors continue to hold a decisive influence on price increases, similarly to the
pre‑crisis period. Costs of raw materials and labour further rank first and second among the
driving forces underlying price increases, followed by the quality of products/services, which
replaced changes in demand and which, in fact, is considered the most important element
competitiveness‑wise.
17
Turning to the other determinants, the changing features of the business environment also altered
their relative relevance in relation to the findings of Copaciu et. al (2010). Specifically, the rise in
financial costs gained significant ground from the pre-crisis period, standing forth in the ranking,
while demand lost markedly in importance, although it seems hard to believe that the latter’s
impact on price increases is negligible. Most likely, firms based their answers solely on their recent
experience, marked by a lack of demand-pull inflationary pressures, and therefore these answers
cannot be viewed as describing firms’ behaviour under normal economic circumstances.
Moreover, the relevance of the exchange rate for both price increases and decreases declined
considerably, possibly owing to its significantly lower volatility.
Table 8. The determinants of price changes
Price increase
Driving factor
Price decrease
Mean score Driving factor
Mean score
1. Costs of raw materials
3.22
1. Costs of raw materials
3.00
2. Labour costs
3.08
2. Labour costs
2.93
3. Product quality
2.87
3. Demand
2.86
4. Financial costs
2.73
4. Main competitors’ prices
2.77
5. Other production costs
2.68
5. Product quality
2.75
6. Main competitors’ prices
2.64
6. Financial costs
2.66
7. Exchange rate
2.64
7. Other production costs
2.31
8. Inflation rate
2.58
8. Exchange rate
2.48
9. Demand
2.42
9. The company’s liquidity
1.99
10. The company’s liquidity
2.14
Note: Companies indicated the importance of each factor by rating them from 1 (unimportant) to 4 (very important).
It should be noted that the present survey does not reveal an asymmetric behaviour of companies
as to price increases and decreases, costs of raw materials and labour being deemed the most
important driving factors in the case of a downward adjustment as well. At first glance, the result
is surprising, as it is at odds with the high degree of competition pointed to by this survey, as well
as with the findings of the research on the euro area countries undertaken by IPN and of the survey
conducted by Copaciu et. al (2010) in Romania, that single out demand-side factors (competitors’
prices and the fall in demand) as the most important. In reality, however, firms’ responses tend
to reflect almost exclusively their most recent experience, when the economic environment in
which they operated has displayed low but relatively stable demand (free of significant demandside shocks). These demand conditions would explain why firms are prone to cutting prices as a
response to a decline in production/operation costs instead of seizing the opportunity of raising
their profit margin.
18
Furthermore, this survey reveals a notable impact of demand and the main competitors’ price
developments on the decision to cut prices. However, this impact is not prevailing, even though
the current economic context and the high degree of competition would have warranted a higher
importance of these factors.
6. Price stickiness
Economic literature abounds in theories that account for the lack of an immediate price response
to economic shocks.
The theory of implicit contracts relies on long-term business relationships and the clients’
preference for stable prices. The idea of an “invisible handshake” was initially advanced by
Okun in 1981. He analysed the companies’ response to a rise in costs versus demand and noticed
a higher degree of stickiness in the latter’s case owing to its being perceived as unjust by most
customers.
The theory of explicit contracts implies the existence of written or verbal long-term arrangements
with customers, meaning that prices stay constant until the arrangement in question is renegotiated.
These arrangements help to make future sales and prices more predictable from the companies’
and clients’ perspective respectively. They are actually the main determinants of price stickiness.
The theory of coordination failure looks at companies’ interactions and assumes that prices
remain unchanged reflecting the lack of adjustments at competitors’ level. This theory builds on a
strong competition in the market.
The theory of price readjustment or temporary shocks maintains that prices hardly respond
to demand or supply shocks that are considered temporary, given the risk of having to readjust
prices shortly afterwards in the opposite direction. It is not relevant whether the shock is really
short‑lived or not, the companies’ perception of it is what matters.
The theory of quality signals assumes that firms avoid cutting prices because customers might
wrongly interpret price adjustments as a decrease in quality.
The theory of pricing thresholds is based on a discontinuous price-demand relationship. In such
context, firms set their prices at psychologically attractive thresholds and raising the price above
these thresholds would reduce demand significantly.
The theory of menu costs points out that the act of changing prices is deferred because it implies
certain additional costs (changing price tags and catalogues).
The theory of changing non-price factors starts from the premise that price is but one among the
many features of a product that may be revised in the face of a changing economic environment,
as companies may choose to adjust guarantees, the delivery period or payment deadlines instead
of prices.
19
The theory of costly information alleges that the price adjustment decision implies additional
costs linked to gathering the relevant information necessary for adopting and implementing such
decisions.
In 2011-2012, firms changed their prices four times a year on average across the economy as a
whole, not showing significantly higher flexibility compared with the pre-crisis period, when price
changes occurred three times a year.
Table 9. Average frequency of actual price changes in 2011-2012
Agriculture
Mining
2011
7
2
2
2012
7
2
2
Trade
Services
Total
economy
2
8
3
4
2
9
3
4
Manufacturing Construction
In industry and construction, prices were adjusted less frequently (twice a year), whereas in
agriculture and trade, price changes took place more often, these latter sectors actually revealing a
high degree of flexibility, higher than that seen in 2005.
It is primarily implicit and explicit contracts that drive companies to delay price changes. This
has not changed since 2005 and the result is nowhere close to surprising, given the steadiness of
customer relationships and the majority share held by long-term arrangements in the turnover.
Furthermore, most research works carried out by IPN endorse these two theories.
Given the fierce competition facing small- and medium-sized enterprises that are prevalent in
certain economic sectors, another driving factor of price stickiness has to do with competition,
especially in agriculture, trade and services. Thus, a firm sticks to its prices because none of its
main competitors introduced any price changes.
Another significant determinant of the companies’ decision to delay changing their prices lies
with the risk of having to readjust the price in the opposite direction within a short time period.
The implications of this type of behaviour are very important – as long as companies forecast
temporary demand or cost shocks, prices remain unchanged even though the current economic
context might command an adjustment.
20
Table 10. Determinants of price stickiness
Mean
score
Percentage of companies
confirming the theory
1. Theory of implicit contracts
3.37
73.5
2. Theory of explicit contracts
3.35
67.1
3. Theory of coordination failure
3.05
52.2
4. Theory of temporary shocks
3.04
47.8
5. Theory of changing non-price factors
3.03
54.3
6. Theory of quality signals
2.97
55.9
7. Theory of costly information
2.76
33.2
8. Theory of pricing thresholds
2.61
31.6
9. Theory of menu costs
2.40
27.5
Note: Companies indicated the importance of each factor by rating them from 1 (unimportant) to 4 (very important).
Companies’ response to economic shocks
Price stickiness can be looked into also by analysing the companies’ response to various demand
or supply shocks.
In order to capture this aspect, the questionnaire included two questions regarding the companies’
response as to adjusting prices, production, wages or accepting the loss by cutting the profit margin
following an unexpected decline in demand or an unforeseen rise in costs of raw materials.
Chart 12. Companies’ response to an unforeseen rise in costs of raw materials
↑P
Agriculture
mean score
3.06 ↓Pr
↑P
2.87
↓Pr
↓S
↓Q
2.11
2.00
↑P
↓Pr
↓S
↓Q
2.53
↓S
3.07 ↑P
↓Pr
2.83
↓S
2.22
↓Q
2.22
1.0 1.5 2.0 2.5 3.0 3.5
3.10 ↑P
↓Pr
2.81
↓Q
1.0 1.5 2.0 2.5 3.0 3.5
Construction
mean score
Mining
mean score
2.05
1.0
1.5
2.0
2.5
Trade
mean score
3.0
2.17
2.12
1.0
1.5
2.0
2.5
3.0
3.5
3.07
2.83
↓Q
2.16
↓S
2.12
3.5
2.96
2.75
Manufacturing
mean score
1.0
↑P
↓Pr
↓S
↓Q
1.5
2.0
2.5
Services
mean score
3.0
3.5
2.79
2.76
2.17
2.04
1.0
1.5
2.0
2.5
3.0
3.5
Note: Companies indicated the degree of probability of each factor by rating them from 1 - improbable
to 5 - highly probable;
↑P – price increase, ↓Pr – profit margin decrease, ↓Q – production decline, ↓S – wage cut.
21
A relatively low degree of price stickiness can be noticed in the case of a supply shock. For
most companies, a rise in costs of raw materials is likely to prompt an increase in prices. The
pass‑through is fairly quick, 31 percent of companies raising their prices within approximately a
month after the shock, 29 percent within one to three months, and 27 percent within three months
to one year.
This result is also linked to the significant relevance of these costs for price increases in all
economic sectors. Moreover, in industry (mining and manufacturing) and construction sectors,
40 to 50 percent of companies frequently or even always change their prices concurrently with
suppliers.
Chart 13. Companies’ response to a negative demand shock
Agriculture
↓P
↓ Pr
↓S
↓Q
mean score
3.04
2.98
2.29
2.26
1.0
1.5
2.0
2.5
3.0
↓ Pr
Mining
mean score
3.10 ↓ Q
2.96 ↓ Pr
↓Q
↓S
↓P
2.65
1.5
2.0
2.5
3.0
↓ Pr
2.89
↓Q
2.88
↓P
2.80
↓S
2.80
↓ Pr
↓P
↓S
↓Q
3.04
2.84
2.59
1.0 1.5 2.0 2.5 3.0 3.5
3.5
Trade
mean score
Construction
mean score
3.12
↓P
↓S
2.61
1.0
3.5
Manufacturing
mean score
Services
mean score
2.96
2.91
2.63
2.62
↓P
2.92
↓ Pr
2.86
↓S
↓Q
2.66
2.53
1.0 1.5 2.0 2.5 3.0 3.5
1.0 1.5 2.0 2.5 3.0 3.5
1.0 1.5 2.0 2.5 3.0 3.5
Note: Companies indicated the degree of probability of each factor by rating them from 1 - improbable
to 5 - highly probable;
↓P – price decrease, ↓Pr – profit margin decrease, ↓Q – production decline, ↓S – wage cut.
As regards the response to a negative demand shock, companies operating in agriculture, trade and
services post the highest flexibility, their reaction involving price decreases, notably by cutting the
profit margin. Findings match expectations, given that:
■ output decline is not an alternative for companies in agriculture and, moreover, producers’
bargaining power in price setting is generally weak – on the one hand, small- and mediumsized enterprises prevail and, on the other hand, large companies account for an above-average
share in total customers;
■ profit margin is among the important components of the final price for trade and services
companies.
In manufacturing, the companies’ option to cut production instead of adjusting prices can be
accounted for also by the dominant presence of large companies that generate roughly two thirds
22
of the sector’s turnover. This sector is dominated by setting prices as margin over costs and around
one third of companies estimate they rank in the top ten companies at national level on the market
segment targeted by their main product, which indicates these firms’ higher power to set prices,
that would ensure them an increased resilience in the face of a decline in demand and a quick
pass-through of higher costs to prices. Furthermore, price stickiness of firms in case of a decline
in demand, yet not in the case of an increase in costs, may also signal that companies in this sector
work with low profit margins.
In mining and construction, no clear strategy could be identified, owing to the existing inconsistencies
across answers, as companies in these sectors claim they are very likely to reduce their profit
margins following an unforeseen decline in demand, but much less likely to cut their prices. These
inconsistences are possibly due to companies having considered the change in their total profit
instead of that in their profit margin in formulating their answers.
7. Wage policy
How much do labour costs count for firms?
Labour costs add up to little under a third of companies’ total costs (on average 29 percent), with
small- and medium-sized companies facing the highest pressure.
Should a ranking be made across economic sectors, as expected, the share of labour costs in total
costs is the highest in the services sector.
Chart 14. Share of labour costs in total costs
3,000
Total economy
2,500
Median: 25%
Mean: 28.8%
1,500
1,000
• Mean
3
4
5
500
6
0
10
20
Micro-enterprises
28.2%
Median
2
2,000
0
1
30
40
50
SMEs
30.1%
60
70
80
90 100
Large companies
29.5%
0
10
20
30
40
50
60
70
80
90 100
1. Trade
4. Mining
2. Agriculture
5. Manufacturing
3. Construction
6. Services
23
What is the education level of the labour force?
From blue to white collar
The education level of employees is of significance for the labour cost policy, as the salary level
depends on education. According to expectations, agriculture and construction sectors comprise the
highest number of low-educated employees (over 20 percent of total staff in each case), whereas in
services and trade sectors, more graduate or postgraduate employees are hired.
Chart 15. Education level
%
Trade
9
62
Mining
10
66
Services
11
59
Manufacturing
Construction
Agriculture
17
22
28
29
25
30
67
16
58
20
50
0
20
40
60
low
medium
22
80 100
higher
NIS data confirm survey results – in 2013,
the lowest average gross wage earnings
were recorded in agriculture (lei 1,657) and
construction (lei 1,778). By contrast, in the
trade sector, which posts the highest share
of medium and higher education employees,
wages are low, the average gross income
standing at only lei 1,945. On average, the
highest wage was paid in the mining industry
(lei 4,227), approximately twice that in the
manufacturing sector (lei 2,059).
Wage adjustment mechanism
In order for the survey to identify potential
downward wage rigidity, it is necessary to
establish the proportions to which automatic
wage indexation schemes and flexible mechanisms that allow for wage raises below inflation level
respectively are used across the economy.
Therefore, companies were asked about the use of the inflation rate as parameter for wage adjustment.
Across the economy, 24 percent of firms stated that inflation rate is taken into account in setting
wages, yet only 16 percent of companies employ an automatic indexation mechanism, with similar
results for all economic sectors. The current survey reveals lower percentages compared with
those found by Copaciu et. al (2010)3. This difference can be accounted for, on the one hand, by
the changes in the labour market conditions, in that the cyclical position of the economy has likely
weakened the bargaining power of employees, and, on the other hand, by the amendments to the
wage negotiation framework. The latter were prompted by the entry into force as of May 2011 of
the new Labour Code dismissing the national collective labour agreement. Moreover, these factors
are probably accompanied by the lower inflation rates recorded after 2005.
Which is the frequency and period of wage adjustments?
The survey reveals that, in Romania, wages are stickier than prices. Companies were asked to
assess the frequency of wage adjustments according to their determinants: adjustments driven
by indexation to the inflation rate and adjustments based on other determinants. In most cases,
3
24
For example, in the pre-crisis period, the share of companies indexing wages to inflation stood at 37 percent.
indexation to the inflation rate occurs once a year for 54 percent of companies. By contrast,
wage adjustments driven by other factors than inflation increase are generally less frequently
implemented, at least every two years, highlighting a rare renegotiation of wages. This behaviour is
commonplace across the main economic sectors. However, the most frequent changes are recorded
in the manufacturing sector, determined by price increases, as well as by other factors.
On the other hand, the survey does not point to a definite seasonality of wage adjustments,
but, where such a pattern was mentioned, employees’ wages are most likely to be adjusted in
January.
Chart 16. Frequency of wage adjustments
60
Frequency
%
40
54
41
20
0
1
2
3
4
1
Inflation rate excluded
2
3
4
Indexation to inflation
1 - more frequently than once a year 3 - every two years
4 - less frequently
2 - once a year
Dec.
Nov.
Oct.
Sep.
Aug.
Jul.
Jun.
May
Apr.
Mar.
Feb.
Jan.
no month
Period
%
82
�
0 2 4 6 8 10 40 60 80 100
Chart 17. Frequency of wage adjustments at sectorial level
Factors excluding inflation rate
%
%
39
31
33
Services
14
50
36
62
Trade
12
52
36
65
Construction
8
Manufacturing
10
54
42
35
36
0
25
more often
Indexation to inflation
51
63
58
50
Mining
60
63
Agriculture
50
75
100
once a year less frequently
42
16
0
25
more often
30
37
48
50
once a year
36
75
100
less frequently
25
However, there has been a change in the wage adjustment mechanism as compared with the
pre‑crisis period, when most wage raises occurred more than once a year – according to Copaciu
et. al (2010), 28 percent of the surveyed firms would raise wages more than once a year, while
only 14 percent of them would review and adjust wages once every two years or less frequently.
Which are the factors driving wage adjustments?
Firms were asked to rank by importance each factor impacting upon the decision to increase wages.
In order to test for any asymmetry in the process of wage adjustment, the same question was asked
also regarding the decision to cut wages.
Companies identified two factors, i.e. labour productivity and company profitability, as the most
relevant for both wage raises and cuts. A slight difference can be noticed however in the firms’
behaviour. Specifically, raises seem to be dictated rather by employees’ improved individual
efforts4, whereas the companies’ economic condition seems to prevail in the case of pay cuts.
Moreover, over 70 percent of respondents believed that a legal amendment leading to an increase
in the minimum gross wage also represents a main determinant of raising salaries. The two-stage
process of increasing the minimum gross wage implemented during 2013, which is the reference
period in the current survey, may have had a possible impact on responses.
The findings are similar to those of Copaciu et. al (2010) only as regards the high importance
of productivity. In the aforesaid paper, the question is formulated in a general manner, namely
regarding the main driving factors of wage adjustments – productivity, taxes, demand, and inflation
rate. Nevertheless, authors state that findings must be interpreted with caution, because firms might
have associated productivity also with other determinants that were not explicitly cited, e.g. the
decline in labour supply.
4
26
However, in the case of wage increases, statistical tests show a roughly close-to-zero gap between the mean scores
of the first two determinants.
Table 11. Determinants of wage adjustments
Wage raise
Wage cut
Mean
score
Percentage
of firms*
Mean
score
Percentage
of firms*
1. Productivity
3.10
80.9
1. Profitability
3.00
76.4
2. Profitability
3.08
79.9
2. Productivity
2.93
74.0
3. Change in the minimum
gross wage
2.98
71.6
3. Tax changes
2.86
56.2
4. Tax changes
2.55
55.5
4. Change in the minimum
gross wage
2.77
55.1
5. Change in labour supply
2.34
45.1
5. Change in labour supply
2.75
43.8
6. Change in other costs
2.27
42.3
6. Change in other costs
2.66
43.8
Determinant
Determinant
Note: Companies indicated the degree of importance of each factor by rating them from 1 (unimportant) to
4 (very important).
* Percentage of companies that rated the factor as important (at least 3).
8. Conclusions
Romanian companies operate on a highly competitive and specialised domestic market, defined
by long-term customer relationships – the share of long-term arrangements in the total turnover
exceeds 50 percent across all economic sectors, peaking at 59 percent in agriculture.
All companies included in the survey perceive they have been facing a high and/or a very high
degree of competition as regards their main product and only 27 percent of companies consider
they rank among the national top ten companies on the market segment targeted by their main
product.
Around 50 percent of companies negotiate prices with their customers, whereas only 43 percent of
companies hold complete price-setting control, their main strategy consisting in setting prices as a
(fixed and/or variable) margin above the variable cost per unit of output.
Most companies charge differentiated selling prices, 75 percent of them basing their price-setting
decision on a comprehensive set of information from the recent past, as well as on forecasts.
Across the economy, over 50 percent of companies apply a time-dependent pricing policy, the
actual price adjustments occurring solely in the event of economic environment changes. This
implies that price adjustment takes place at two different stages: firstly, the price is reviewed at
certain predefined time intervals and then changed should a significant difference from the optimal
price be observed.
The main determinants of price changes are supply-side factors, namely costs of raw materials and
labour costs.
27
Except for agriculture, where one third of the companies indicate a change in prices especially in
Q2 and Q3, no clear seasonality can be observed.
In 2011 and 2012, prices were revised on average four times a year across the economy as a whole,
without noticing a significant flexibility compared to the pre-crisis period, when price changes
took place three times a year.
Price changes occurred less frequently in industry and construction, whereas in agriculture and
trade, they were more frequent, the latter sectors showing even a high degree of flexibility, also in
comparison to 2005.
The main factors driving firms to delay price changes are implicit and explicit contracts, and this
is not at all surprising, given the steadiness of customer relationships and the majority share of
long‑term contracts in the turnover.
The analysis of companies’ response to supply shocks versus demand shocks reveals roughly
low price stickiness in the former case. For most companies it is more likely that an increase in
costs of raw materials be transferred to prices. This pass-through takes place fairly quickly: some
31 percent of companies raise their prices approximately one month after the shock, 29 percent
one to three months and 27 percent three months to one year. In case of a negative demand shock,
manufacturing companies post a higher degree of stickiness, opting for decreasing their output
level instead of adjusting their prices. Furthermore, the degree of stickiness appears to be directly
proportional to the size of the company.
Across the economy, only 24 percent of companies take into account the inflation rate in setting
wages and, compared with prices, wages are much stickier. In most cases, indexing wages to
the inflation rate takes place once a year, whereas wage adjustments driven by other factors are
generally implemented less frequently, at least every two years. Employees’ productivity and
companies’ profitability stand as the main determinants of wage adjustments.
28
References
Alvarez, Luis J.,
Hernando, Ignacio
The Price Setting Behaviour of Spanish Firms. Evidence from
Survey Data, ECB Working Paper No. 538, October 2005
Amirault, David,
Kwan, Carolyn,
Wilkinson, Gordon
Survey of Price-Setting Behaviour of Canadian Companies, Bank
of Canada Working Paper 2006-35, September 2006
Aucremanne, Luc,
Druant, Martine
Price-Setting Behaviour in Belgium. What Can Be Learned from
an Ad Hoc Survey?, ECB Working Paper No. 448, March 2005
Benkovskis, Konstantins,
Wörtz, Julia
Non-Price Competitiveness of Exports from Emerging Countries,
ECB Working Paper No. 1612, November 2013
Blinder, Alan S.
Why Are Prices Sticky? Preliminary Results from an Interview
Study, American Economic Review 81 (2), 1991
Copaciu, Mihai,
Neagu, Florian,
Braun-Erdei, Horia
Survey Evidence on Price-Setting Patterns of Romanian Firms,
Managerial and Decision Economics 31(2-3), 2010
Fabiani, Silvia,
Druant, Martine,
Hernando, Ignacio et al.
What Firms’ Surveys Tell Us about Price-Setting Behavior in the
Euro Area, International Journal of Central Banking 2(3), 2006
Fabiani, Silvia,
Gattulli, Angela,
Sabbatini, Roberto
The Pricing Behaviour of Italian Firms: New Survey Evidence on
Price Stickiness, paper delivered at the Inflation Persistence in the
Euro Area Conference, Frankfurt am Main, 10-11 December 2004
Hoeberichts, Marco,
Stokman, Ad.
Price Setting Behaviour in The Netherlands. Results of a Survey,
ECB Working Paper No. 607, April 2006
Kwapil, Claudia,
Baumgartner, Josef,
Scharler, Johann
The Price-Setting Behavior of Austrian Firms. Some Survey
Evidence, ECB Working Paper No. 464, March 2005
Loupias, Claire,
Ricart, Roland
Price Setting in France. New Evidence from Survey Data, ECB
Working Paper No. 423, December 2004
Lünnemann, Patrick,
Mathä, Thomas Y.
New Survey Evidence on the Pricing Behaviour of Luxembourg
Firms, ECB Working Paper No. 617, May 2006
Martins, Fernando
The Price Setting Behaviour of Portuguese Firms. Evidence From
Survey Data, Banco de Portugal Working Paper No. 4, January
2006
29
Okun, Arthur
Prices and Quantities: A Macroeconomic Analysis, Washington,
DC.: The Brookings Institution, 1981
Stahl, Harald
Price Setting in German Manufacturing. New Evidence from New
Survey Data, ECB Working Paper No. 561, December 2005.
30
Appendix
SURVEY ON PRICE-SETTING BEHAVIOUR
I. COMPANY IDENTIFICATION DATA
Correct possible errors and add
missing information where
appropriate:
Statistical Business Register information:
I.1. Name:
I.2. Tax Identification Number:
I.3. Legal status:
I.4. Location:
I.5. Postal code:
I.6. Address:
I.7. County:
I.8. Telephone:
I.9. Fax:
I.10. E-mail:
I.11. Main economic activity - NACE Rev. 2 class I.11.1. Code:
I.11.2. Economic activity
I.12. Subscribed share capital (lei):
I.13. Turnover (lei):
I.14. Average number of employees:
II. IDENTIFICATION DATA OF THE PERSON FILLING OUT THE QUESTIONNAIRE
II.1. Full name:
II.2. Position:
II.3. Telephone:
Date:
II.4. Fax:
II.5. E-mail:
Signature and seal
D
D
M
M
Y
Y
Y
Y
Pursuant to Law No. 226/2009 on the organisation and functioning of official statistics in Romania, as subsequently amended
and supplemented, and Law No. 312/2004 on the Statute of the National Bank of Romania, the information herein is
confidential and may be used for the required statistical purposes alone.
31
III. GENERAL INFORMATION
III. GENERAL INFORMATION
III.1. What is your main product for the domestic market depending on the share of earnings stemming from it
the 2012
turnover?
III.1. inWhat
is your
main product for the domestic market depending on the share of earnings stemming from it
in the 2012 turnover?
%
III.2. Your company's rank on the domestic market according to the market share of the main product is:
one option.
III.2. Check
Youronly
company's
rank on the domestic market according to the market share of the main product is:
a)Check
top spot
a
only one option.
top4spot
b)a)top
ba
top104
c)b)top
cb
top10+
10
d)c)top
d) top 10+
III.3. Main customers for your main product on the domestic market are:
one option.
III.3. Check
Mainonly
customers
for your main product on the domestic market are:
a)Check
households
only one option.
householdswithin the group
b)a)companies
%
dc
d
a
ba
cb
companies within the group
c)b)SMEs
SMEs
d)c)large
companies
dc
large companies
e)d)general
government
ed
e) general government
e
III.4. Type of business relationship with customers for your main product on the domestic market is generally:
one option.
III.4. Check
Typeonly
of business
relationship with customers for your main product on the domestic market is generally:
a)Check
long-term
(over
a year)
a
only one
option.
long-term (over a year)
b)a)short-term/occasional
(less than a year)
ba
b) short-term/occasional (less than a year)
b
III.4.A. Specify the share of long-term contracts (over a year) in your 2012 turnover (%):
III.4.A. Specify the share of long-term contracts (over a year) in your 2012 turnover (%):
III.5. Indicate the importance of the determinants of your main product’s competitiveness on the domestic market:
- unimportant,
2 - of minor
importance,
3 - important,
- very
important)
III.5. (1Indicate
the importance
of the
determinants
of your 4main
product’s
competitiveness on the domestic market:
Rate
of the options
(1 - each
unimportant,
2 - ofbelow.
minor importance, 3 - important, 4 - very important)
Rate each of the options below.
a) price
b)a)quality
price
c)b)degree
qualityof product differentiation
d)c)delivery
period
degree of
product differentiation
e)d)long-term
relationships with customers
delivery period
f)e)other
factorsrelationships
(specify) with customers
long-term
f) other factors (specify)
1
a)
b)a)
c)b)
d)c)
2
1
3
2
4
3
4
e)d)
f)e)
f)
IV. PRICE-SETTING BEHAVIOUR
IV. PRICE-SETTING
BEHAVIOUR
(questions
in this section refer
to the main product indicated with respect to question III.1.)
(questions in this section refer to the main product indicated with respect to question III.1.)
IV.1. Who sets the price?
IV.1. Check
Whoonly
sets one
the option.
price?
a)Check
the price
setoption.
by the company itself
onlyisone
b)a)the
company
theprice
priceisisset
setby
bythe
theparent
company
itself
c)b)the
bargaining
with the customers
theprice
priceisisset
setbybydirect
the parent
company
d)c)the
by the
authorities
theprice
priceisisregulated
set by direct
bargaining
with the customers
d) the price is regulated by the authorities
IV.2. How is the price set?
can be
checked.
IV.2. Several
How isoptions
the price
set?
a)Several
depending
on can
the be
developments
in the prices of the main competitors
options
checked.
b)a)adepending
fixed margin
to the variable
cost per
of output
(labour costs and costs of other inputs)
on is
theapplied
developments
in the prices
of unit
the main
competitors
c)b)a avariable
marginisisapplied
appliedtotothe
thevariable
variablecost
costper
perunit
unitofofoutput
output(labour
depending
market
fixed margin
costson
and
costs conditions
of other inputs)
d)c)aaprice
indexation
rule
is
applied
(e.g.
inflation
rate)
variable margin is applied to the variable cost per unit of output depending on market conditions
d) a price indexation rule is applied (e.g. inflation rate)
32
a
ba
cb
dc
d
a
ba
cb
dc
d
IV.3.
Your company's pricing decisions are based, besides current information, on:
Check only one option.
a) data from the recent past
b) expectations/forecasts
c) both
IV.4.
a
b
c
The selling price is generally:
Check only one option.
a) the same for all customers
b) differentiated
a
b
IV.4.A. If you checked option b) in question IV.4., specify to what extent your main customers benefit from
preferential prices for your main product.
Several options can be checked. If you checked option a) in question III.3., then fill out under Customers - Households;
otherwise, fill out under Customers - Companies.
IV.5.
Customers - Companies (companies within the group, SMEs in Romania,
large companies in Romania and general government)
a) depending on the quantity purchased
b) depending on market conditions
c) in certain periods throughout the year
d) other (specify)
a
b
c
d
Customers - Households
a) depending on the quantity purchased
b) depending on market conditions
c) in certain periods throughout the year
d) other (specify)
a
b
c
d
To what extent does your company experience price competition for the main product?
Check only one option.
a) overly strong competition
b) strong competition
c) moderate competition
d) weak competition
IV.6.
a
b
c
d
The price of the main product is reviewed, without necessarily being changed:
Several options can be checked.
a) regularly
b) depending on the economic situation (in response to a relatively strong shock)
a
b
IV.6.A. If your answer in question IV.6. included option a), indicate the frequency of price reviews:
Check only one option.
1) daily
2) weekly
3) monthly
4) four times a year
5) twice a year
6) once a year
7) less than once a year
IV.7.
1
2
3
4
5
6
7
The price of the main product is actually changed:
Several options can be checked.
a) regularly
b) depending on the economic situation (in response to a relatively strong shock)
a
b
33
IV.7.A. If your answer in question IV.7. included option a), indicate the frequency of price changes:
Check only one option.
1) daily
2) weekly
3) monthly
4) four times a year
5) twice a year
6) once a year
7) less than once a year
IV.8.
1
2
3
4
5
6
7
Are price changes more likely to be concentrated in any particular month?
Check only one option.
a) no
b) yes (specify):
IV.9.
a
b
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
Do you align the timing of your price changes with those of your suppliers?
Check only one option.
a) never
b) sometimes
c) often
d) always
a
b
c
d
IV.10. If you decided to increase the price of your main product by 10%, by what percentage would the demand for
the said product fall, all other things being equal?
Check only one option.
a) more than 20%
b) considerably more than 10%, but less than 20%
c) approximately 10%
d) considerably less than 10%
e) the demand would remain virtually unchanged
a
b
c
d
e
IV.11. Indicate the importance of the following driving factors in raising your prices:
(1 - unimportant, 2 - of minor importance, 3 - important, 4 - very important)
Rate each of the options below.
1
a) the inflation rate
b) an increase in costs of raw materials
c) an increase in labour costs
d) an increase in financial costs
e) an increase in other production costs
f) an increase in demand
g) a higher exchange rate
h) an increase in the main competitors' prices
i) a higher product quality
j) liquidity constraints
2
3
4
3
4
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
IV.12. Indicate the importance of the following driving factors in cutting your prices:
(1 - unimportant, 2 - of minor importance, 3 - important, 4 - very important)
Rate each of the options below.
1
34
a) a decrease in costs of raw materials
b) a decrease in labour costs
c) a decrease in financial costs
d) a decrease in other production costs
e) a decrease in demand
f) a lower exchange rate
g) a decrease in the main competitors' prices
h) a lower product quality
i) a liquidity surplus
a)
b)
c)
d)
e)
f)
g)
h)
i)
2
d) an increase in financial costs
e) an increase in other production costs
f) an increase in demand
g) a higher exchange rate
h) an increase in the main competitors' prices
i) a higher product quality
j) liquidity constraints
d)
e)
f)
g)
h)
i)
j)
IV.12. Indicate the importance of the following driving factors in cutting your prices:
(1 - unimportant, 2 - of minor importance, 3 - important, 4 - very important)
Rate each of the options below.
1
a) a decrease in costs of raw materials
b) a decrease in labour costs
c) a decrease in financial costs
d) a decrease in other production costs
e) a decrease in demand
f) a lower exchange rate
g) a decrease in the main competitors' prices
h) a lower product quality
i) a liquidity surplus
2
3
4
a)
b)
c)
d)
e)
f)
g)
h)
i)
IV.13. Indicate the average lag with which an upward/downward price change occurs following the increase/decrease
in certain production costs (Use the following rates: 1 - less than a week, 2 - one week to one month, 3 - one to three
months, 4 - three to six months, 5 - six months to one year, 6 - no price changes):
Rate each of the options below.
Increase
1
a) costs of raw materials
b) labour costs
c) financial costs
d) other production costs
2
3
Decrease
4
5
6
1
2
3
4
5
6
a)
b)
c)
d)
IV.14. Indicate the importance of the following driving factors in postponing price changes:
(1 - unimportant, 2 - of minor importance, 3 - important, 4 - very important, 0 - unable to assess)
Rate each of the options below.
1
2
3
4
0
a)
a) the existence of a fixed price that can only be changed
when the contract is renegotiated
b)
b) the risk that competitors do not change their prices
c)
c) the risk that the company subsequently has to readjust
d)
its prices in the opposite direction
d) clients' preference for stable prices;
e)
changing prices frequently could threaten customer relations.
f)
e) the risk that customers may interpret a reduction in price
as a reduction in quality
g)
f) the costs involved in collecting the relevant information
h)
for price changing decisions
i)
g) the costs implied by price changes
(e.g. costs of changing catalogues, price tags, etc.)
h) the preference for maintaining prices at a certain psychological threshold (e.g. lei 99).
i) a change in other agreement provisions
(e.g. payment deadline, guarantees, etc.)
IV.15. How many times did you change the price of your main product in 2011 and 2012?
2011
2012
V. WAGE-SETTING MECHANISM
V.1.
V.2.
What is the share of labour costs in total costs (%)?
Does your company have a policy that adapts changes in base wages to inflation?
Check only one option.
a) yes
b) no
V.3.
a
b
If you checked option a) in question V.2., select the option that best refects the policy pursued:
V.3.A. Wage changes are automatically linked to:
35
Check only one option.
a) past inflation
b) expected inflation
a
b
V.1.
V.2.
What is the share of labour costs in total costs (%)?
Does your company have a policy that adapts changes in base wages to inflation?
Check only one option.
a) yes
b) no
V.3.
a
b
If you checked option a) in question V.2., select the option that best refects the policy pursued:
V.3.A. Wage changes are automatically linked to:
Check only one option.
a) past inflation
b) expected inflation
or
V.3.B. Although there is no formal rule, wage changes take into account:
a
b
a) past inflation
b) expected inflation
a
b
Check only one option.
V.4.
V.4.
V.4.
How frequently is the base wage of an employee belonging to the main occupational group in your company
How
frequently
is the base wage of an employee belonging to the main occupational group in your company
typically
changed?
typically
changed?
Rate
of the options
if the of
answer
in question
V.2. is a);to
otherwise,
only option a).
Howeach
frequently
is the below
base wage
an employee
belonging
the mainrate
occupational
group in your company
Rate
each changed?
of the options below if the answer in question V.2. is a); otherwise, rate only option a).
typically
Rate each of the options below if the answer in question V.2. is a); otherwise, rate only option a).
V.5.
V.5.
V.5.
V.6.
V.6.
V.6.
a) wage changes due to factors excluding inflation rate
a)
excluding
inflation rate
b) wage changes due to factors
indexation
to inflation
b)
wage
changes
due
to
indexation
to
inflation
a) wage changes due to factors excluding inflation rate
Are
wage
adjustments
more likelytotoinflation
be concentrated in any particular month?
b)
wage
changes
due to indexation
Are wage
Check
only adjustments
one option. more likely to be concentrated in any particular month?
Check
only adjustments
one option. more likely to be concentrated in any particular month?
a)
nowage
Are
a)
no
Check
one option.
b) yes only
(specify):
b)
yes (specify):
a) no
Jan.
Feb.
Mar.
Apr.
May
Jun.
b) yes (specify):
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul.
Aug.
Sep.
Oct.
Nov.
Dec.
Indicate theJul.
importance
factors in changing
wage:
Aug.of the following
Sep. drivingOct.
Nov. the baseDec.
Indicate
the importance
of the
following3driving
factors
changing
the base wage:
(1 - unimportant,
2 - of minor
importance,
- important,
4 -invery
important)
(1
- unimportant,
2 - of below.
minor
importance,
- important,
4 -invery
important)
Rate
eachthe
of the
options
Indicate
importance
of the
following3driving
factors
changing
the base wage:
Rate
each of the options
to raise the
(1 - unimportant,
2 - of below.
minor importance, 3 - important, 4Decision
- very important)
Rate each of the options below.
V.7.
V.7.
V.7.
V.8.
Rate
each
of the options
below.
(1 - not
relevant,
2 - of little
relevance, 3 - relevant, 4 - very relevant)
V.9.
4
4
1
2
3
4
a
ba
ba
b
1
2
3
4
1
1
2
2
3
3
4
4
1
2
3
4
a)
a) reduce prices
a)
a)
b)
b) reduce prices
output
1
2
3
4
b)
b)
reduce
output
c)
c) reduce
cut
wages
a)
a)
prices
c)
c)
wages
d)
d) cut
accept
the
loss (by reducing profit margins)
b)
b)
reduce
output
d)
d)
accept
the
loss
(by
reducing
profit
margins)
c)
c) cut wages
How
relevant
is each
of the following
strategies when your firmd)faces an unforeseen rise in costs of raw
d)
accept
the loss
(by reducing
profit margins)
How
relevant
offuel
the following
materials
(e.g.isa each
rise in
price)? strategies when your firm faces an unforeseen rise in costs of raw
materials
(e.g.isa 2each
rise
fuel
price)? 3strategies
(1 - not
relevant,
- ofin
little
- relevant,when
4 - very
relevant)
How
relevant
of
therelevance,
following
your
firm faces an unforeseen rise in costs of raw
(1 - not
relevant,
2rise
- ofinlittle
Rate
each
of
the aoptions
below.
materials
(e.g.
fuelrelevance,
price)? 3 - relevant, 4 - very relevant)
a) increase
Rate
each ofprices
the options below.
V.9.
V.9.
3
3
4
1 base
2 wage
3
4
a) 1base 2wage3
a) staff productivity
a) 1
a)
productivity
b)
b) staff
developments
in the company's profitability
2
3
4
1
2
3
4
b)
b)
developments
in the company's profitability
c)
c) staff
tax
changes
a)
a)
productivity
c)
c)
changes
d)
d) tax
change
in labour
supply
b)
b)
developments
in the
company's profitability
d)
change
in the
labour
supply gross wage economy-wide d)
e)
e) tax
minimum
c)
c)
changes
e)
e)
change
in
the
minimum
f)
f) change
costs
d)
change in
in other
labour
supply gross wage economy-wide d)
f)
f)
change
in
other
costs
e)
e) change in the minimum gross wage economy-wide
How
relevant
is
each
of
the
following
strategies
when
your
firm faces an unexpected decline in demand?
f)
f) change in other costs
How
relevant
is 2each
therelevance,
following3strategies
your
firm faces an unexpected decline in demand?
(1 - not
relevant,
- of of
little
- relevant,when
4 - very
relevant)
(1
- not
relevant,
2each
- of of
little
- relevant,when
4 - very
relevant)
Rate
each
of theisoptions
below.
How
relevant
therelevance,
following3strategies
your
firm faces an unexpected decline in demand?
Rate
each
of the options
below.
(1 - not
relevant,
2 - of little
relevance, 3 - relevant, 4 - very relevant)
36
2
2
Decision to freeze/cut the
Decision
to freeze/cut
the
base
wage
base
wage
1
2
3
4
Decision to freeze/cut the
Decision
raise the
baseto
wage
base
wage
1
2
3 the4
Decision to raise
Rate each of the options below.
V.8.
V.8.
1
1
a)
a)
b)
b)
c)
a)
c)
d)
b)
d)
c)
a)
prices
b) increase
reduce output
1
2
3
4
b)
reduce
output
c)
cut
wages
a) increase prices
c)
wages
d)
accept
the
loss (by reducing profit margins)
b) cut
reduce
output
d) cut
accept
the loss (by reducing profit margins)
c)
wages
What
is the
of employees
your company according tod)their education level?
d) accept
thenumber
loss (by reducing
profitinmargins)
What
the number
of employees
in your
company
according
a) low is
education
(no education,
primary
school
or middle
school) to their education level?
What
is
theeducation
number
of
employees
in your
company
their education level?
a)
education
(no education,
primary
school
or middle
school) toschool)
b) low
medium
(high
school,
vocational
school
oraccording
apprentice
(1 - not relevant, 2 - of little relevance, 3 - relevant, 4 - very relevant)
Rate each of the options below.
1
a) reduce prices
b) reduce output
c) cut wages
d) accept the loss (by reducing profit margins)
V.8.
2
3
4
a)
b)
c)
d)
How relevant is each of the following strategies when your firm faces an unforeseen rise in costs of raw
materials (e.g. a rise in fuel price)?
(1 - not relevant, 2 - of little relevance, 3 - relevant, 4 - very relevant)
Rate each of the options below.
1
a) increase prices
b) reduce output
c) cut wages
d) accept the loss (by reducing profit margins)
V.9.
2
3
4
a)
b)
c)
d)
What is the number of employees in your company according to their education level?
a) low education (no education, primary school or middle school)
b) medium education (high school, vocational school or apprentice school)
c) higher education (university or postgraduate studies)
37