Research-Papers


Documento de Trabajo N° 1051: Beyond Costs: The Dominant Role of Strategic Complementarities in Pricing

Autor: Elias Albagli , Francesco Grigoli , Emiliano Luttini , Dagoberto Quevedo , Marco Rojas


Description

This paper documents five empirical facts about the role of strategic complementarities in firms’ price-setting behavior, using administrative data from Chilean firms. (1) Strategic complementarities play a dominant role in price setting, exerting a stronger influence than changes in marginal costs. (2) While the strength of strategic complementarities varies across sectors, they consistently outweigh the role of cost changes. (3) In high-inflation environments, firms become more responsive to changes in the prices of their competitors. (4) Firms respond more strongly to competitor price increases than to decreases, mirroring the ‘rockets and feathers’ phenomenon of costs. (5) Strategic complementarities are stronger among firms with fewer competitors, larger market shares, and broader customer bases. These findings suggest that strategic complementarities —a source of real rigidities—are sizable, state-dependent, asymmetric, and shaped by market structure.

 
Share: