Price and investment dynamics: Theory and plant level data

We construct a model of a firm competing for market share in a customer market and making investments in physical capital. The firm is financially constrained and there are implementation lags in investment. Our model predicts that product prices should depend on costs and competitors' prices, but respond weakly to demand shocks. Also, prices should be strongly related to investment. Estimating price and investment equations on panel data for Swedish manufacturing plants we find results which are qualitatively in line with these predictions, though the relation between investment and prices is stronger than predicted by our model.

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Year of publication:	2007
Authors:	Lundin, Magnus ; Gottfries, Nils ; Bucht, Charlotte ; Lindström, Tomas
Publisher:	Uppsala : Uppsala University, Department of Economics
Subject:	price rigidity \| price equation \| investment equation \| credit constraint

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Series:	Working Paper ; 2004:7
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	768648424 [GVK] hdl:10419/83125 [Handle] RePEc:hhs:uunewp:2004_007 [RePEc]
Classification:	D43 - Oligopoly and Other Forms of Market Imperfection ; E31 - Price Level; Inflation; Deflation ; E32 - Business Fluctuations; Cycles ; E44 - Financial Markets and the Macroeconomy ; L11 - Production, Pricing, and Market Structure Size; Size Distribution of Firms ; L13 - Oligopoly and Other Imperfect Markets ; L16 - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure; Industrial Price Indices
Source:	EconStor

Persistent link: https://www.econbiz.de/10010321999