Quantified Narrative Evidence on the Price-Setting Behavior of Public Companies

Abstract

We quantify narrative evidence from 20 years of archived corporate reports to construct a novel dataset on the price setting behavior of publicly traded companies. Based on verbal discussions of 1,949 pricing decisions taken by 983 different firms, we obtain four main findings. First, the causes of price changes are highly asymmetric, with raw material costs mainly driving prices up, and considerations about the behavior of competitors mainly driving prices down. Second, considerations about the behavior of competitors are also the main factor preventing firms from raising their prices, followed by weak aggregate demand conditions and existing contracts. Third, the presence of real rigidities is also borne out by a large number of cases in which firms adjust prices after changes in costs but explicitly describe these adjustments as incomplete. Fourth, the number or reported price changes is positively related to the number of reported price rigidities. We discuss our findings and their implications in the context of widely-used price-setting models.