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Optimal price setting during a currency changeover: theory and evidence from french restaurants

Author

Listed:
  • Nicoletta Berardi

    (Centre de recherche de la Banque de France - Banque de France)

  • Thomas Eife

    (Universität Heidelberg [Heidelberg] = Heidelberg University)

  • Erwan Gautier

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes, Centre de recherche de la Banque de France - Banque de France)

Abstract

This article studies firms' price-setting decision during a currency changeover. Buyers' difficulties with the new nominal price level may create incentives to raise prices temporarily but doing so comes at the risk of damaging a seller's standing as a fair retailer. We model firms' trade-off and study conditions under which increasing or decreasing prices is optimal. A difference-in-differences analysis based on micro-data of French restaurants strongly supports the model's predictions. Prices during the 2002 changeover in the European Monetary Union were less likely to rise in larger restaurants, nontourist restaurants and when prices were advertised.

Suggested Citation

  • Nicoletta Berardi & Thomas Eife & Erwan Gautier, 2014. "Optimal price setting during a currency changeover: theory and evidence from french restaurants," Post-Print hal-04477584, HAL.
    • Handle: RePEc:hal:journl:hal-04477584
    DOI: 10.1080/00036846.2014.914144
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    References listed on IDEAS

    as
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    Cited by:

    1. Mustafa Utku Özmen, 2020. "In Pursuit Of Understanding Markups In Restaurant Services Prices," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(06), pages 1423-1437, December.

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    More about this item

    Keywords

    Price setting; Changeover; Euro; Inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • M39 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Other

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