Holiday Price Rigidity and Cost of Price Adjustment

Daniel Levy (), Georg Müller, Haipeng (Allan) Chen (), Mark Bergen and Shantanu Dutta
Additional contact information
Georg Müller: Deloitte Consulting [Diegem]
Mark Bergen: Carlson School of Management - UMN - University of Minnesota [Twin Cities] - UMN - University of Minnesota System
Shantanu Dutta: FBE, Marshall School of Business - USC - University of Southern California

Post-Print from HAL

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 non-holiday 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; Cost of Price Adjustment; Menu Cost; Holiday Period; Asymmetric Price Adjustment; Monetary Policy (search for similar items in EconPapers)
Date: 2010-01
Note: View the original document on HAL open archive server: https://hal.science/hal-02387730
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Published in Economica, 2010, 77 (305), pp.172-198. ⟨10.1111/j.1468-0335.2008.00738.x⟩

Downloads: (external link)
https://hal.science/hal-02387730/document (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 (2009)
Working Paper: Holiday Price Rigidity and Cost of Price Adjustment (2008)
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:hal:journl:hal-02387730

DOI: 10.1111/j.1468-0335.2008.00738.x

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().