Year: 1994
Type: report
Abstract: During recessions, output prices tend to rise relative to wages and raw-materials prices.One explanation of this fact is that imperfectly competitive firms compete less aggressively during recessionsthat is, markups of price over marginal cost are countercyclical.We present a model in which markups are countercyclical because of capital-market imperfections.During recessions, liquidity-constrained firms try to boost short-run profits by raising prices to cut their investments in market share.We provide evidence from the supermarket industry in support of this theory.We show that during regional and macroeconomic recessions, the most financially constrained supermarket chains tend to raise their prices relative to less fmancially constrained chains.
DOI: 10.3386/w4614
Authors: Judith Chevalier, David Scharfstein
Language: English
Subfield: Marketing
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1633268707