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Empirical investigation of price setting and quantity surcharges in the German food sector

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  • Awudu Abdulai

    (Department of Food Economics and Consumption Studies, University of Kiel, Olshausenstrasse 40, D-24098 Kiel, Germany)

  • Christian Kuhlgatz

    (Department of Food Economics and Consumption Studies, University of Kiel, Olshausenstrasse 40, D-24098 Kiel, Germany)

  • Silke Schmitz

    (Department of Food Economics and Consumption Studies, University of Kiel, Olshausenstrasse 40, D-24098 Kiel, Germany)

Abstract

In this study, the authors examined the incidence and determinants of quantity price discounts and quantity price surcharges in the German food sector through a bivariate probit model, using recent consumer scanner survey data. Selectivity bias was corrected for in estimating the magnitude of quantity price surcharges and quantity price discounts, using Heckman's procedure. The findings reveal that almost 10% of the investigated products attract higher unit prices for larger package sizes, although the extent of price surcharges varied among product categories. Quantity price discounts were found to dominate in the firms' pricing strategies. The econometric results showed that the number of package sizes, the average package size, the packaging and storage forms, as well as the price image of a product are all significant determinants of the decision to impose both quantity price surcharges and quantity price discounts. [JEL classification: D40, L11] © 2009 Wiley Periodicals, Inc.

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File URL: http://hdl.handle.net/10.1002/agr.20205
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 25 (2009)
Issue (Month): 3 ()
Pages: 331-350

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Handle: RePEc:wly:agribz:v:25:y:2009:i:3:p:331-350

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Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Kyle Bagwell & Michael Riordan, 1988. "High and Declining Prices Signal Product Quality," Discussion Papers 808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Ron Borzekowski & Raphael Thomadsen & Charles Taragin, 2009. "Competition and price discrimination in the market for mailing lists," Quantitative Marketing and Economics, Springer, vol. 7(2), pages 147-179, June.
  3. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
  4. Richard Thaler, 1985. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 4(3), pages 199-214.
  5. Cohen, Andrew, 2008. "Package size and price discrimination in the paper towel market," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 502-516, March.
  6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  7. Carlson, John A & Gieseke, Robert J, 1983. " Price Search in a Product Market," Journal of Consumer Research, University of Chicago Press, vol. 9(4), pages 357-65, March.
  8. 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.
  9. Sofronis K. Clerides, 2004. "Price Discrimination with Differentiated Products: Definition and Identification," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 402-412, July.
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Cited by:
  1. Reggiani, Carlo, 2011. "Size (of the product) matters," Journal of Economics and Business, Elsevier, vol. 63(4), pages 329-344, July.

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