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Thick markets, market competition and pricing dynamics: evidence from retailers

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  • Kostas Axarloglou

    (Democritus University of Thrace, Greece)

Abstract

By using store-level transaction price data for books in Ann Arbor, Michigan, and music CDs in Natick, Massachusetts, the implications of thick markets and the intensity of market competition on price markups and the synchronization in price adjustments are empirically tested. The data indicate that for books, actual price markups are 6% lower than the suggested price markups, while for music CDs, they are 3.6% lower. Popular items are more heavily discounted than less popular ones. The data show that a 10% increase in national sales of a given book title results in a 0.06% drop in price markups. Also, market competition has a non-linear depressing effect on price markups that becomes stronger for widely known popular items. Finally, a 10% increase in the number of sellers in the market lead to a 5.8% increase in the likelihood of a price adjustment and a 2.2% increase in the share of sellers that synchronize their price adjustments. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Kostas Axarloglou, 2007. "Thick markets, market competition and pricing dynamics: evidence from retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 669-677.
    • Handle: RePEc:wly:mgtdec:v:28:y:2007:i:7:p:669-677
    DOI: 10.1002/mde.1380
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    3. Hellberg-Bahr, Anneke & Pfeuffer, Martin & Spiller, Achim & Brümmer, Bernhard, 2011. "Using Price Rigidities to Explain Pricing Strategies in the Organic Milk Chain," 2011 International European Forum, February 14-18, 2011, Innsbruck-Igls, Austria 122003, International European Forum on System Dynamics and Innovation in Food Networks.

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