Pricing in firm-to-firm trade: evidence from a Danish multinational

Abstract

We study pricing decisions in firm-to-firm trade. Using novel detailed transaction-level data from a Danish multinational firm, we uncover considerable price dispersion across countries, customers, and, surprisingly, within the same customer. In fact, we find that transaction-specific characteristics are the most important factors in explaining price variation. The extent of price dispersion within a customer relationship can be affected by the firm’s price setting strategy. Our unique dataset allows us to examine the consequences of introducing price lists containing recommended and minimum prices. We find that prices converge towards the recommended price, and that price dispersion within a customer can decline if the price lists successfully narrow the pricing range for the products that the customer purchases.