Beyond Costs: The Dominant Role of Strategic Complementarities in Pricing
IMF Working Papers, August 15, 2025
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- Beyond Costs: The Dominant Role of Strategic Complementarities in Pricing
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Bibliographic details
- Authors: Elías Albagli, Francesco Grigoli, Emiliano Luttini, Dagoberto Quevedo, Marco Rojas
- Published: August 15, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229019194.001
Overview
- Paper documents five empirical facts about the role of strategic complementarities in firms’ price-setting behavior using administrative data from Chilean firms.
- Authors: Elías Albagli, Francesco Grigoli, Emiliano Luttini, Dagoberto Quevedo, Marco Rojas
- Date: August 15, 2025
Key empirical findings
- (1) Strategic complementarities play a dominant role in price setting, exerting a stronger influence than changes in marginal costs.
- (2) While the strength of strategic complementarities varies across sectors, they consistently outweigh the role of cost changes.
- (3) In high-inflation environments, firms become more responsive to changes in the prices of their competitors.
- (4) Firms respond more strongly to competitor price increases than to decreases, mirroring the `rockets and feathers' phenomenon of costs.
- (5) Strategic complementarities are stronger among firms with fewer competitors, larger market shares, and broader customer bases.
Implications and interpretation (as stated in the paper)
- These findings suggest that strategic complementarities—a source of real rigidities—are:
- sizable,
- state-dependent,
- asymmetric,
- and shaped by market structure.
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