We assemble an original panel of 2,500 restaurant prices in Italy over the period 1998- 2004 to study whether, and through which channels, the introduction of euro coins and banknotes had an impact on individual pricing behaviour. We reach three conclusions. Firstly, the evidence suggest that the large price increases in this industry are mostly not due to the cash changeover; the event might have focussed public attention on the cumulative price increases which took place before the changeover, reflecting costs and demand. Secondly, the rise in the average meal price was mainly due to a larger proportion of agents revising their prices, rather than to large individual revisions. Finally, more local market power (as proxied by a concentration index) was associated with a larger price increase; an interpretation is proposed for the latter finding, which also explains why the effects of the cash changeover were stronger in less competitive industries.
Published in 2004 in: Giornale degli Economisti e annuali di econimia, v.63, 3-4, pp. 491-526
