Price-Setting Behaviour

In: Business and Management

Submitted By gracekim430
Words 3387
Pages 14
Price-setting Behaviour – Insights from Australian Firms
Anna Park, Vanessa Rayner and Patrick D’Arcy*
Since 2004, the RBA has been conducting a survey of how firms set prices, how frequently they review and change prices, and what factors influence these decisions. the results show that firms employ a range of approaches to price setting, with around half reviewing their prices at a regular interval. early in the survey period, costs were the most important factor in price setting, though demand considerations became more important when economic conditions softened.

Introduction
The way firms set prices can be a key determinant of the dynamics of the inflation process. Given this, over recent years a number of central banks, including the Reserve Bank of Australia (RBA), have conducted surveys of how firms set prices, how frequently they review and change their prices, and what factors influence these decisions.1 This article discusses the results of an ongoing survey that has been conducted by the RBA since 2004. The main findings can be summarised as follows: • the surveyed firms employed a range of approaches to price setting, with slightly more setting prices as a mark-up on costs rather than in response to various demand factors; broadly the same number of surveyed firms reviewed prices at regular intervals (most commonly annually) as reviewed prices with each transaction or in response to external factors, although behaviour differs across sectors; and



costs were the most important driver of price adjustment over the first part of the sample period, with demand considerations becoming more important when economic conditions softened in late 2008.

The Survey
The RBA has been surveying firms about the way they set prices since 2004. The survey has been conducted in two parts. The first was undertaken over an 18-month period from late 2004, with…...

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