Multi-Product Pricing: Theory and Evidence from Large Retailers in Israel
Marco Bonomo (),
Carlos Carvalho (),
Oleksiy Kryvtsov (),
Sigal Ribon and
Staff Working Papers from Bank of Canada
Standard theories of price adjustment are based on the problem of a single-product firm, and therefore they may not be well suited to analyze price dynamics in the economy with multiproduct firms. To guide new theory, we study a unique dataset with comprehensive coverage of daily prices in large multi-product food retailers in Israel. We find that a typical retail store synchronizes its regular price changes around occasional â€œpeak" days when, once or twice a month, it reprices around 10% of its products. To assess the implications of partial price synchronization for inflation dynamics, we develop a new price-setting model in which a firm sells a continuum of products and faces economies of scope in price adjustment. The model generates the partial synchronization pattern with peaks of re-pricing activity observed in the data. We show analytically and numerically that synchronization of price changes attenuates the average price response to a monetary shock; however, only high degrees of synchronization can materially strengthen monetary non-neutrality. Hence, the synchronization of price changes observed in the data is consistent with considerable aggregate price flexibility.
Keywords: Inflation and prices; Market structure and pricing; Monetary Policy (search for similar items in EconPapers)
JEL-codes: D21 D22 E31 E52 L11 (search for similar items in EconPapers)
Pages: 62 pages
New Economics Papers: this item is included in nep-cba, nep-com, nep-ind, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:20-12
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