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Are they always offering the lowest price? An empirical analysis of the persistence of price dispersion in a low inflation environment

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  • Sebnem Bahadir-Lust

    (Department of Economics, Vienna University of Economics and Business Administration, Vienna, Austria)

  • Jens-Peter Loy

    (Department of Agricultural Economics, University of Kiel, Kiel, Germany)

  • Christoph R. Weiss

    (Department of Economics, Vienna University of Economics and Business Administration, Vienna, Austria)

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    Abstract

    We study the existence of price distributions and the intra-distribution dynamics for 10 food products across 131 retail stores in Germany for a time period of 43 weeks. Based upon Varian's (1980) model of sales, we aim at investigating whether the position of stores within the cross-sectional price distribution is persistent or changes over time (mixed-strategy equilibrium). Our results suggest a substantial degree of price dispersion even after controlling for unobserved store heterogeneity. Despite some intra-distribution dynamics, we find evidence for a persistence of stores in the cross-sectional price distribution over time. Copyright © 2007 John Wiley & Sons, Ltd.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 28 (2007)
    Issue (Month): 7 ()
    Pages: 777-788

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    Handle: RePEc:wly:mgtdec:v:28:y:2007:i:7:p:777-788

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050 Elsevier.
    2. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
    3. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
    4. Loy, Jens-Peter & Weiss, Christoph R., 2002. "Staggering and Synchronisation of Prices in a Low Inflation Environment: Evidence from German Food Stores," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24823, European Association of Agricultural Economists.
    5. Timothy J. Richards, 2006. "Sales by multi-product retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 261-277.
    6. Walsh, Patrick Paul & Whelan, Ciara, 1999. "Modelling Price Dispersion as an Outcome of Competition in the Irish Grocery Market," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 325-43, September.
    7. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-58, August.
    8. Grether, David M. & Schwartz, Alan & Wilde, Louis L., . "Uncertainty and Shopping Behavior: An Experimental Analysis," Working Papers 511, California Institute of Technology, Division of the Humanities and Social Sciences.
    9. Braverman, Avishay, 1980. "Consumer Search and Alternative Market Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 487-502, April.
    10. Pratt, John W & Wise, David A & Zeckhauser, Richard, 1979. "Price Differences in Almost Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 189-211, May.
    11. Saul Lach, 2002. "Existence and Persistence of Price Dispersion: an Empirical Analysis," NBER Working Papers 8737, National Bureau of Economic Research, Inc.
    12. Steven Salop & Joseph Stiglitz, 1977. "Bargains and ripoffs: a model of monopolistically competitive price dispersion," Special Studies Papers 94, Board of Governors of the Federal Reserve System (U.S.).
    13. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
    14. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
    15. Villas-Boas, J Miguel, 1995. "Models of Competitive Price Promotions: Some Empirical Evidence from the Coffee and Saltine Crackers Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 85-107, Spring.
    16. Loy, Jens-Peter & Weiss, Christoph R., 2002. "Staggering and Synchronisation of Prices in a Low Inflation Environment: Evidence from German Food Stores," FE Working Papers 0203, Christian-Albrechts-University of Kiel, Department of Food Economics and Consumption Studies.
    17. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    18. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
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    Cited by:
    1. Anania, Giovanni & Nistico, Rosanna, 2012. "Price dispersion, search costs and consumers and sellers heterogeneity in retail food markets," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 125594, International Association of Agricultural Economists.
    2. Daniel Levy, 2007. "Price rigidity and flexibility: new empirical evidence," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 639-647.
    3. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.
    4. Hoffman, Angela & Senkler, Heike, 2011. "Interformat price competition of multi-product retailers: Evidence for German grocery retailing," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114533, European Association of Agricultural Economists.

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