Price Adjustment at Multiproduct Retailers

Daniel Levy (), Shantanu Dutta, Mark Bergen and Robert Venable
Additional contact information
Shantanu Dutta: University of Southern California
Mark Bergen: University of Minnesota
Robert Venable: Robert W. Baird, Co.

Industrial Organization from EconWPA

Abstract: We empirically study the price adjustment process at multiproduct retail stores. We use a unique store level data set for five large supermarket and one drugstore chains in the U.S., to document the exact process required to change prices. Our data set allows us to study this process in great detail, describing the exact procedure, stages, and steps undertaken during the price change process. We also discuss various aspects of the microeconomic environment in which the price adjustment decisions are made, factors affecting the price adjustment decisions, and firm-level implications of price adjustment decisions. Specifically, we examine the effects of the complexity of the price change process on the stores’ pricing strategy. We also study how the steps involved in the price change process, combined with the laws governing the retail price setting and adjustment, along with the competitive market structure of the retail grocery industry, influence the frequency of price changes. We also examine how the mistakes that occur in the price change process influence the actions taken by these multiproduct retailers. In particular, we study how these mistakes can make the stores vulnerable to civil law suits and penalties, and also damage their reputation. We also show how the mistakes can lead to stock outs or unwanted inventory accumulations. Finally, we discuss how retail stores try to minimize these negative effects of the price change mistakes.

Keywords: Cost of Price Adjustment; Price Adjustment Process; Menu Cost; Posted Prices; Multiproduct Retailer; Price rigidity; Sticky Prices; Frequency of Price Changes; Time Dependent Pricing; Retail Supermarket and Drugstore Chains (search for similar items in EconPapers)
JEL-codes: E31 E12 E50 G13 G14 L11 L15 L16 M21 M31 Q11 Q13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-mac
Date: 2005-05-15
Note: Type of Document - pdf; pages: 62
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Related works:
Journal Article: Price adjustment at multiproduct retailers (1998)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:0505005

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