Financial constraints fuel price mark-ups, Italian paper finds

The Bank of Italy

A working paper published by the Bank of Italy finds empirical evidence that financial constraints on Italian firms pushed up prices from 2010 to 2013, despite low demand in the economy.

In I will survive. Pricing strategies of financially distressed firms, Ioana Duca, José Montero, Marianna Riggi and Roberta Zizza examine whether firms keep prices relatively high in times of low demand, if they have “stable customer relations and face financial frictions”, as customer market theory predicts.

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