Pricing Behaviour and Menu Costs in Multi‐product Firms

Abstract

This paper investigates the micro‐foundations of pricing behaviour using monthly producer prices for Norwegian multi‐product firms. We find both infrequent and many small price changes together with a high degree of within‐firm synchronization. This points at fixed menu costs featuring scope economies, at additional linear and convex price adjustment costs, and at the presence of firm‐specific shocks. The structural estimates and a simulation support the view that in order to understand pricing behaviour and the effectiveness of monetary policy, the analysis of multi‐product firms and a richer price adjustment technology in the intermediate goods sector is valuable.