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Psychological Prices and Price Rigidity in Grocery Retailing: Analysis of German Scanner Data

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  • Herrmann, Roland
  • Moeser, Anke

Abstract

A substantial degree of price rigidity has been reported for branded foods in various studies with scanner data. One possible explanation for price rigidity is the existence of psychological pricing points. We analyze to which extent psychological pricing plays a role in grocery retailing and whether it contributes to price rigidity of branded foods in Germany. Psychological pricing – defined here as just-below-the-round-figure-pricing – is empirically analyzed with scanner data of weekly prices for 20 food brands in 38 retail outlets from September 1996 to June 1999. Psychological pricing turned out to be extremely important in German food retailing. Branded food prices are remarkably sticky and psychological pricing points contribute strongly to price rigidity. Other factors like the sales phenomenon and firm-specific effects are additionally important.

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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2005 Annual meeting, July 24-27, Providence, RI with number 19471.

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Date of creation: 2005
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Handle: RePEc:ags:aaea05:19471

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Keywords: Marketing; Q110; Q130;

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  1. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  2. Herrmann Roland & Moeser Anke & Weber Sascha Alexander, 2005. "Price Rigidity in the German Grocery-Retailing Sector: Scanner-Data Evidence on Magnitude and Causes," Journal of Agricultural & Food Industrial Organization, De Gruyter, De Gruyter, vol. 3(1), pages 1-37, February.
  3. Herrmann, Roland & Moser, Anke, 2003. "Price Variability Or Rigidity In The Food-Retailing Sector? Theoretical Analysis And Evidence From German Scanner Data," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa, International Association of Agricultural Economists 25867, International Association of Agricultural Economists.
  4. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(5), pages 947-985, October.
  5. Elizabeth Powers & Nicholas Powers, 2001. "The Size and Frequency of Price Changes: Evidence from Grocery Stores," Review of Industrial Organization, Springer, Springer, vol. 18(4), pages 397-416, June.
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