Holiday Price Rigidity and Cost of Price Adjustment

Daniel Levy (), Georg Müller, Haipeng (Allan) Chen (), Mark Bergen and Shantanu Dutta

MPRA Paper from University Library of Munich, Germany

Abstract: The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers’ questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. For example, the econometric model we estimate suggests that the probability of a price change is lower during holiday periods, even after accounting for cost changes. Moreover, we find that the probability of a price change increases with the size of the cost change, during both, the holiday as well as non-holiday periods. We argue that these findings are best explained by higher price adjustment costs (menu cost) the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and nonholiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity, and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity.

Keywords: Price Rigidity; Sticky Price; Rigid Price; Cost of Price Adjustment; Menu Cost; Holiday Period; Asymmetric Price Adjustment; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E12 E31 E50 E52 L11 L16 M21 M31 (search for similar items in EconPapers)
Date: 2008-05-06
New Economics Papers: this item is included in nep-com, nep-mac, nep-mic and nep-tur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/13095/1/MPRA_paper_13095.pdf original version (application/pdf)

Related works:
Journal Article: Holiday Price Rigidity and Cost of Price Adjustment (2010)
Journal Article: Holiday Price Rigidity and Cost of Price Adjustment (2010)
Working Paper: Holiday Price Rigidity and Cost of Price Adjustment (2010)
Working Paper: Holiday Price Rigidity and Cost of Price Adjustment (2009)
Working Paper: Holiday Price Rigidity and Cost of Price Adjustment (2005)
Working Paper: Holiday Price Rigidity and Cost of Price Adjustment (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:13095

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().