Pricing complementarities play a key role in determining the propagation of monetary disturbances in sticky price models. We propose a procedure to infer the degree of firm-level pricing complementarities in the context of a menu cost model of price adjustment using data on prices and market shares at the level of individual varieties. We then apply this procedure by calibrating our model (in which pricing complementarities are based on decreasing returns to scale at the variety level) using scanner data from a large grocery chain. Our data is consistent with moderately strong levels of firm-level pricing complementarities, but they appear too weak to generate much larger aggregate real effects from nominal shocks than a model without these pricing complementarities. 1

Endogenous fluctuations in mark-ups driven by changes in consumers ’ search intensity are studied in a monetary search economy. These fluctuations in market power determine the extent to which real and nominal prices adjust to shocks to productivity and the money growth rate in the absence of costs or temporal restrictions on sellers ’ ability to change prices. A calibrated version of the economy is consistent with several empirical regularities documented in the literatures on exchange rate pass-through and the cyclical properties of mark-ups. In particular, both the pass-through of cost movements to real and nominal prices and the adjustment of nominal prices to changes in the money growth rate are incomplete. Also, mark-up fluctuations may be either pro- or counter-cyclical depending on their source. Furthermore, a higher average rate of inflation results in both a lower average mark-up and increasing sensitivity of prices to fluctuations in either productivity or money growth. ∗We thank Dale Mortensen, Shouyong Shi, Harald Uhlig, Randall Wright, and seminar participants at the