Normal costs and demand effects in price setting: a study of retailing

The study aims at contributing to the debate whether there are demand effects in models that seek to explain prices as mark-ups on costs. For costs it considers actual costs, normal costs and an intermediate model with a partial adjustment to the deviation of actual from normal costs. For demand effects it considers an effect on the price level of a change of demand, with an allowance for asymmetry between demand growth and demand decline. Tests and estimates are conducted on the basis of data from retailing