Speaker: Cristina Griffa
Co-author: Galina Potjagailo
Affiliation: FEN UChile
Date and time: Wednesday, April 23, 2025 14:30 (Santiago, GMT-04:00)
Location:

• Auditorio at the Central Bank of Chile, Morandé 115, second floor.
• Online meeting

Registration: seminarios@bcentral.cl

Abstract: Do firms factor in expectations about prices of their competitors when setting their prices? We exploit unique survey data that has asked firms in the United Kingdom since 2009 about the realised and expected price changes for their own prices and the prices of their domestic competitors. We find that own-price inflation expectations are robustly positively associated with a firm’s price changes. Own-price and own-industry expected price changes are often reported to be identical, pointing to inattention to industry-wide inflation. However, when the two are reported to be different from each other, asymmetric effects emerge. When firms expect their competitors’ price changes to lie above what they expect for their own price changes, they end up increasing their prices by more. By contrast, there is no similar downward price adjustment when the firm expects its competitors’ price changes to be lower than their own. Hence, firms have more scope to adjust their prices upward without losing market share if they expect their competitors to do so too. Our results can have aggregate implications via stronger pass-through of inflationary shocks that affect entire industries and via strategic complementarities.