Studies on Price Mark-ups and Price Rigidity

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The research project encompasses wide range of issues related to pricing decisions of firms, determinants of price mark-ups and price adjustments, in particular. Theoretical research focused upon three major issues. First of all, the research builds and analyzes a model of limit pricing under complete information, We find that limit pricing can emerge even under complete information if rapid capacity expansion to facilitate large price cut is costly. Second aspect of the theoretical research is collusive pricing and the impact of anti-dumping laws. We build the model to analyze impacts of antidumping law on the formation of self-enforcing collusion and their pricing. Third aspect of the research is price rigidity. We focus upon price rigidity arising from the incentive to pre-commit long-run price for durable good producers. We show the incentive to pre-commit depends critically upon the degree of inter-temporal substitution in consumption.On empirical side, the research focuses upon three aspects of pricing policy and its interactions with other aspects of firm behavior. We first obtained several alternative estimates of mark-ups of major Japanese firms and industries, drawing upon different data sets. We find that for most of firms and industries, these estimates are significantly above unity. We then examined determinants of these mark-ups, focusing especially upon impacts of regulatory policy variables, We also investigated the consequences' of varying mark-ups on the estimate of technical progress. We find that ignoring the downward bias of the estimate created by assuming marginal cost pricing (when it is not) is substantial. Finally, we also investigated the impact of price-cost margin on the. survival probability of newly established firms in Japan.