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Price Rigidity in the German Grocery-Retailing Sector: Scanner-Data Evidence on Magnitude and Causes

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  • Herrmann Roland

    (University of Giessen)

  • Moeser Anke

    (University of Giessen)

  • Weber Sascha Alexander

    (University of Giessen)

Abstract

The theoretical and empirical macroeconomic literature suggests that price rigidity in industrialized countries is substantial and its causes are manifold. This article provides empirical evidence on the importance of price rigidity in the grocery-retailing sector and on the role of some major determinants of food price rigidity. The analysis is based on a comprehensive weekly dataset of 20 branded foods in German food stores. The statistical analysis shows that food price rigidity is strong in spite of the widespread use of retail sales. Moreover, the importance of psychological pricing in grocery retailing is overwhelming. Econometric results indicate that food prices get more sticky as the number of price actions declines and as psychological pricing becomes more concentrated on a few important price barriers. Firms’ pricing strategies are crucial for food price rigidity, too.

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Bibliographic Info

Article provided by De Gruyter in its journal Journal of Agricultural & Food Industrial Organization.

Volume (Year): 3 (2005)
Issue (Month): 1 (February)
Pages: 1-37

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Handle: RePEc:bpj:bjafio:v:3:y:2005:i:1:n:4

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  1. Bergès-Sennou Fabian & Bontems Philippe & Réquillart Vincent, 2004. "Economics of Private Labels: A Survey of Literature," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 2(1), pages 1-25, February.
  2. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  3. Daniel Hosken & David Reiffen, 2001. "Multiproduct retailers and the sale phenomenon," Agribusiness, John Wiley & Sons, Ltd., vol. 17(1), pages 115-137.
  4. Elizabeth Powers & Nicholas Powers, 2001. "The Size and Frequency of Price Changes: Evidence from Grocery Stores," Review of Industrial Organization, Springer, vol. 18(4), pages 397-416, June.
  5. Anil K. Kashyap, 1990. "Sticky prices: new evidence from retail catalogs," Finance and Economics Discussion Series 112, Board of Governors of the Federal Reserve System (U.S.).
  6. Owen, Ann & Trzepacz, David, 2002. "Menu costs, firm strategy, and price rigidity," Economics Letters, Elsevier, vol. 76(3), pages 345-349, August.
  7. Michael B. Ward & Jay P. Shimshack & Jeffrey M. Perloff & J. Michael Harris, 2002. "Effects of the Private-Label Invasion in Food Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 961-973.
  8. Levy, Daniel, et al, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 791-825, August.
  9. Daniel Levy & Shantanu Dutta & Mark Bergen & Robert Venable, 2005. "Price Adjustment at Multiproduct Retailers," Industrial Organization 0505005, EconWPA.
  10. Herrmann, Roland & Möser, Anke, 2003. "Price variability or rigidity in the food-retailing sector? Theoretical analysis and evidence from German scanner data," Discussion Papers 11, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
  11. Stiving, Mark & Winer, Russell S, 1997. " An Empirical Analysis of Price Endings with Scanner Data," Journal of Consumer Research, University of Chicago Press, vol. 24(1), pages 57-67, June.
  12. Conlisk, John & Gerstner, Eitan & Sobel, Joel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 489-505, August.
  13. Schindler, Robert M & Kirby, Patrick N, 1997. " Patterns of Rightmost Digits Used in Advertised Prices: Implications for Nine-Ending Effects," Journal of Consumer Research, University of Chicago Press, vol. 24(2), pages 192-201, September.
  14. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
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Cited by:
  1. Herrmann, Roland & Anders, Sven & Thompson, Stanley R., 2005. "Übermäßige Werbung und Marktsegmentierung durch staatliche Förderung der Regionalvermarktung: Eine theoretische Analyse," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 54(3).
  2. Herrmann, Roland & Möser, Anke & Weber, Sascha A., 2009. "Grocery retailing in Germany: Situation, development and pricing strategies," Discussion Papers 41, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
  3. Weber, Sascha A. & Anders, Sven, 2005. "Price Rigidity and Market Power in German Retailing," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24721, European Association of Agricultural Economists.
  4. Moeser, Anke, 2011. "Coupon, Bogof, Linksave oder Rabatt? Akzeptanz neuer Verkaufsförderungsaktionen des Lebensmitteleinzelhandels," 51st Annual Conference, Halle, Germany, September 28-30, 2011 114499, German Association of Agricultural Economists (GEWISOLA).
  5. Herrmann, Roland & Moeser, Anke, 2005. "Psychological Prices and Price Rigidity in Grocery Retailing: Analysis of German Scanner Data," 2005 Annual meeting, July 24-27, Providence, RI 19471, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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