Advanced Search
MyIDEAS: Login to save this paper or follow this series

The hazard function of sales: An analysis of UK supermarket food prices

Contents:

Author Info

  • Lan, Hao
  • Lloyd, Tim A.
  • Morgan, C. Wyn
Registered author(s):

    Abstract

    In this paper we examine the empirical pattern of sales behaviour among the UK’s seven largest retail chains using a scanner dataset of weekly food prices on over 500 products over a 2.5 year period. Motivating the analysis is the question ’are products more likely to go on sale that longer they remain unpromoted?’. Theory is not unanimous and empirical and recent empirical studies also offer conflicting evidence. To address the question we estimate the hazard rate of a sale - probability that a product goes on sale in the tth week since the last sale - over the market as a whole and then separately across different national retailers. We pay particular attention to the effects of sales in like-for-like products in rival retailers on the hazard of a sale. We also find that accounting for multiple sales has a pivotal role in determining the slope of the hazard function, which actually reverses sign when proper account is taken of this seemingly innocuous technicality. Correcting for this we find that food products are more likely to be discounted the longer they remain without a sale. This result helps square the circle between price setting and modern theories of sales behaviour. Furthermore, we find that the positive time-dependent pattern varies across product format and brand status. With sales in rivals, branded products in a representative retailer are more likely to be discounted if it has been on sale previously in the rival retailers, however the hazard of a sale in private labels is unrelated to its rival sales. In the individual retailer level, the hazard results show that while most supermarkets exhibit some form of a ’hi-lo’ pricing there is one retail chain does not (showing no time-dependence) preferring an every day low pricing strategy (EDLP).

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://purl.umn.edu/151972
    Download Restriction: no

    Bibliographic Info

    Paper provided by Agricultural Economics Society in its series 87th Annual Conference, April 8-10, 2013, Warwick University, Coventry, UK with number 151972.

    as in new window
    Length:
    Date of creation: Apr 2013
    Date of revision:
    Handle: RePEc:ags:aesc13:151972

    Contact details of provider:
    Email:
    Web page: http://www.aes.ac.uk/
    More information through EDIRC

    Related research

    Keywords: sales; the hazard function; multiple sales; Demand and Price Analysis; Research Methods/ Statistical Methods; L16; L66; E30;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Hosken Daniel & Reiffen David, 2007. "Pricing Behavior of Multiproduct Retailers," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-45, November.
    2. Fisher, Timothy C. G. & Konieczny, Jerzy D., 2000. "Synchronization of price changes by multiproduct firms: evidence from Canadian newspaper prices," Economics Letters, Elsevier, vol. 68(3), pages 271-277, September.
    3. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1192-1230.
    4. DeGraba, Patrick, 2006. "The loss leader is a turkey: Targeted discounts from multi-product competitors," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 613-628, May.
    5. Peter J. Klenow & Oleksiy Kryvtsov, 2007. "State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?," Discussion Papers 07-007, Stanford Institute for Economic Policy Research.
    6. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
    7. Ellickson, Paul & Misra, Sanjog, 2006. "Supermarket Pricing Strategies," Working Papers 06-02, Duke University, Department of Economics.
    8. Josef Baumgartner & Ernst Glatzer & Fabio Rumler & Alfred Stiglbauer, 2005. "How Frequently Do Consumer Prices Change in Austria? Evidence from Micro CPI Data," Working Papers 101, Oesterreichische Nationalbank (Austrian Central Bank).
    9. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
    10. Luis J. Álvarez & Pablo Burriel & Ignacio Hernando, 2005. "Do decreasing hazard functions for price changes make any sense?," Banco de Espa�a Working Papers 0508, Banco de Espa�a.
    11. Emi Nakamura & Dawit Zerom, 2009. "Accounting for Incomplete Pass-Through," NBER Working Papers 15255, National Bureau of Economic Research, Inc.
    12. 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.
    13. Berck, Peter & Brown, Jennifer & Perloff, Jeffrey M. & Villas-Boas, Sofia B, 2007. "Sales : tests of theories on causality and timing," CUDARE Working Paper Series 1031, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
    14. Bernardo Guimaraes & Kevin D. Sheedy, 2008. "Sales and Monetary Policy," CEP Discussion Papers dp0887, Centre for Economic Performance, LSE.
    15. Rajiv Lal, 1990. "Price Promotions: Limiting Competitive Encroachment," Marketing Science, INFORMS, vol. 9(3), pages 247-262.
    16. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
    17. Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," The Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January.
    18. Sobel, Joel, 1984. "The Timing of Sales," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 353-68, July.
    19. Timothy J. Richards, 2006. "Sales by multi-product retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 261-277.
    20. Paul W. Dobson & Eitan Gerstner, 2010. "For a Few Cents More: Why Supersize Unhealthy Food?," Marketing Science, INFORMS, vol. 29(4), pages 770-778, 07-08.
    21. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284 Elsevier.
    22. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
    23. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ags:aesc13:151972. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.