Decision Stages and Asymmetries in Regular Retail Price Pass-Through

Blakeley B. McShane (), Chaoqun Chen (), Eric T. Anderson () and Duncan I. Simester ()
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Blakeley B. McShane: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Chaoqun Chen: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Eric T. Anderson: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Duncan I. Simester: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142

Marketing Science, 2016, vol. 35, issue 4, 619-639

Abstract: We study the pass-through of wholesale price changes onto regular retail prices using an unusually detailed data set obtained from a major retailer. We model pass-through as a two-stage decision process that reflects both whether as well as how much to change the regular retail price. We show that pass-through is strongly asymmetric with respect to wholesale price increases versus decreases. Wholesale price increases are passed through to regular retail prices 70% of the time while wholesale price decreases are passed through only 9% of the time. Pass-through is also asymmetric with respect to the magnitude of the wholesale price change, with the magnitude affecting the response to wholesale price increases but not decreases. Finally, we show that covariates such as private label versus national brand, 99-cent price endings, and the time since the last wholesale price change have a much stronger impact on the first stage of the decision process (i.e., whether to change the regular retail price) than on the second stage (i.e., how much to change the regular retail price).Data, as supplemental material, are available at http://dx.doi.org/10.1287/mksc.2015.0947 .

Keywords: regular; retail; price; pricing; pass-through (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:35:y:2016:i:4:p:619-639

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