The Stickiness of Firm Shipping Prices: Analysis based on questionnaire and scanner data

Author Name ABE Naohito  (Hitotsubashi University) /TONOGI Akiyuki  (Hitotsubashi University) /WATANABE Tsutomu  (Faculty Fellow, RIETI)
Creation Date/NO. October 2008 08-J-057
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In this paper we present the findings set out below using a questionnaire survey of price-setting behavior covering 123 Japanese firms that produce and ship foodstuffs and miscellaneous household goods. First, approximately 90% of the firms conduct business in such a way that even if costs or demand change, they do not immediately change their shipping prices; in this regard prices are sticky. There are two reasons for this. Of the firms surveyed, 30% said that the expense necessary for collecting and processing information on prices and demand prohibited them from quickly altering prices. In addition, 30% of firms said that strategic complementarity inhibited prompt price changes. These constitute the primary causes of stickiness. On the other hand the physical costs of price changes, including menu costs, are not considered important. Second, in regard to the frequency of price changes, more than 30% of all companies have not changed shipping prices even once over the past 10 years, representing strong stickiness. This stickiness is high relative to other countries. Third, by matching responses to the questionnaire and scanner data, we examine the reaction of retail prices at the time of changes in manufacturers' shipping prices, and find no statistically significant correlation. In addition, the frequency of changes in retail prices is far greater than the frequency of changes in shipping prices. These results suggest that the majority of fluctuations in retail prices reflect the behavior not of manufacturing firms but rather of retail and wholesale firms.