Prices and promotions in U.S. retail markets

Günter J. Hitsch (), Ali Hortacsu and Xiliang Lin ()
Additional contact information
Günter J. Hitsch: University of Chicago Booth School of Business
Xiliang Lin: JD.com

Quantitative Marketing and Economics (QME), 2021, vol. 19, issue 3, No 2, 289-368

Abstract: Abstract We provide generalizable results on the price and promotion tactics employed in the U.S. retail grocery industry. First, we document a large degree of price dispersion for UPCs and brands across stores, both nationally and at the local market level. Base price differences across stores and price promotions contribute to the overall price variance, and we show how to decompose the price variance into base price and promotion components. Second, we document that a large percentage of the variation in prices and promotion tactics across stores can be explained by retail chain and especially market/chain factors, whereas market factors explain only smaller percentage of the variation. Third, we show that the chain-level price and promotions similarity can be explained by similarity in demand. In particular, a large percentage of the variance in price elasticities and promotion effects can be explained by retail chain and especially market/retail chain factors. Further, price elasticities and promotion effects across stores of the same chain are hard to distinguish from the chain-market-level mean, and cross-price elasticities are typically imprecisely estimated. These findings suggest that retail managers may plausibly consider price discrimination across stores to be infeasible.

Keywords: Price dispersion; Pricing; Promotions; Retail industry (search for similar items in EconPapers)
JEL-codes: D22 L1 L81 M31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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DOI: 10.1007/s11129-021-09238-x

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