Grocery Retailer Pricing Behavior for California Avocados with Implications for Industry Promotion Strategies
AbstractRising concentration and consolidation of sales among large supermarket chains in the U.S. and other countries, due in part to a recent wave of mergers in food retailing, have made retailers' role in the food industry a topical issue. Using a unique micro dataset, this paper investigates retailer pricing issues for avocados, a key California specialty commodity, and analyzes the implications of retailer pricing behavior for the effectiveness of avocado industry advertising programs. The methodologies developed and the results achieved in this study should have broad applications across the produce sector, the food industry, and the grocery retail market. We find that retail prices for avocados are highly dispersed both spatially and temporarily. The analysis also illustrates the existence of a "regular" retail price for avocados. Downward deviations from the "regular" price dominated changes in retail prices, in particular, temporary price reductions accounted for 27 percent of retail price variations. The study examines the effects of fundamental cost and demand factors on determination of retail prices. We conclude that costs are not a primary factor in setting retail prices for avocados. Retailers' sales strategies, which reflect decreases in retail margins rather than decreases in costs, explained much of the observed temporary price reductions for avocados. Retail prices for avocados also exhibited countercyclical movements over seasonal demand cycles. The findings provide support for Lal and Matutes' (1994) hypothesis that retailers reduce prices or margins during a product's high-demand periods. We investigate how retailers respond to industry promotions and, in turn, how retailer response enhances or vitiates the effectiveness of industry promotions. The approach of "Difference-in-Difference" is employed to evaluate the effects of the California Avocado Commission's (CAC) promotion programs on retail pricing and sales. The analysis demonstrates that the radio campaign and outdoor advertisements were successful in raising avocado sales. There is no evidence that retailers charged higher prices during the CAC's promotions. Nonetheless, the CAC's promotion programs could be enhanced if retailers were better informed about the advertising campaigns. Other noteworthy results include the fact that retail margins increased significantly as shipment volumes increased, indicating the presence of retailer oligopsony power. Also notable was the rather strong evidence that retail prices were significantly lower as a function of the amount of avocados imported from Chile and Mexico, meaning that consumers have benefited from trade liberalization for avocados.
Download InfoIf 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.
Bibliographic InfoPaper provided by International Association of Agricultural Economists in its series 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia with number 25494.
Date of creation: 2006
Date of revision:
F13; L1; L81; Q1; Q13; Demand and Price Analysis; Marketing;
Other versions of this item:
- Li, Lan & Carman, Hoy F. & Sexton, Richard J., 2005. "Grocery Retailer Pricing Behavior for California Avocados with Implications for Industry Promotion Strategies," 2005 Annual meeting, July 24-27, Providence, RI 19498, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
- Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
- Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
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.:
- Sobel, Joel, 1984. "The Timing of Sales," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 353-68, July.
- Salop, Steven & Stiglitz, Joseph E, 1977.
"Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion,"
Review of Economic Studies,
Wiley Blackwell, vol. 44(3), pages 493-510, October.
- 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.).
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Steve Salop, 1976. "Information and monopolistic competition," Special Studies Papers 74, Board of Governors of the Federal Reserve System (U.S.).
- MacDonald, James M, 2000. "Demand, Information, and Competition: Why Do Food Prices Fall at Seasonal Demand Peaks?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 27-45, March.
- Salop, S & Stiglitz, J E, 1982. "The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents," American Economic Review, American Economic Association, vol. 72(5), pages 1121-30, December.
- Connor, John M., 1999. "Evolving Research On Price Competition In The Grocery Retailing Industry: An Appraisal," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 28(2), October.
- Richard J. Sexton & Mingxia Zhang, 1996. "A Model of Price Determination for Fresh Produce with Application to California Iceberg Lettuce," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 924-934.
- Joshua D. Angrist & Victor Lavy, 1999. "Using Maimonides' Rule To Estimate The Effect Of Class Size On Scholastic Achievement," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 533-575, May.
- Daniel Hosken & David Reiffen, 2001. "Multiproduct retailers and the sale phenomenon," Agribusiness, John Wiley & Sons, Ltd., vol. 17(1), pages 115-137.
- Douglas Cooper, 2003. "Findings from the Competition Commission's Inquiry into Supermarkets," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(1), pages 127-143.
- Kaufman, Phillip R. & Handy, Charles R. & McLaughlin, Edward W. & Park, Kristen & Green, Geoffrey M., 2000. "Understanding The Dynamics Of Produce Markets: Consumption And Consolidation Grow," Agricultural Information Bulletins 33747, United States Department of Agriculture, Economic Research Service.
- Alston, Julian M. & Carman, Hoy F. & Chalfant, James A. & Crespi, John M. & Sexton, Richard J. & Venner, Raymond J., 1998. "The California Prune Board's Promotion Program: An Evaluation," Research Reports 11926, University of California, Davis, Giannini Foundation.
- repec:ccp:journl:v:54:y:2003:i:1:p:111-125 is not listed on IDEAS
- Warner, Elizabeth J & Barsky, Robert B, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 321-52, May.
- Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2003.
"Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data,"
American Economic Review,
American Economic Association, vol. 93(1), pages 15-37, March.
- Peter E. Rossi & Judith A. Chevalier & Anil K. Kashyap, 2002. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," Yale School of Management Working Papers ysm291, Yale School of Management.
- Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2000. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," NBER Working Papers 7981, National Bureau of Economic Research, Inc.
- Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
- 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.
- George, P.S. & King, Gordon A., 1971. "Consumer Demand for Food Commodities in the United States with Projections for 1980," Monographs, University of California, Davis, Giannini Foundation, number 11936.
- Giulietti, M., 1995. "Multiproduct Firms' Pricing Behavior in the Italian Grocery Trade," Discussion Papers 9509, Exeter University, Department of Economics.
- Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May.
- Azzeddine M. Azzam, 1999. "Asymmetry and Rigidity in Farm-Retail Price Transmission," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 525-533.
- Rajiv Lal & Ram Rao, 1997. "Supermarket Competition: The Case of Every Day Low Pricing," Marketing Science, INFORMS, vol. 16(1), pages 60-80.
- Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
- Alston, Julian M. & Chalfant, James A. & Christian, Jason E. & Meng, Erika C.H. & Piggott, Nicholas E., 1997. "The California Table Grape Commission's Promotion Program: An Evaluation," Monographs, University of California, Davis, Giannini Foundation, number 11932.
- Paul W. Dobson & Michael Waterson & Stephen W. Davies, 2003. "The Patterns and Implications of Increasing Concentration in European Food Retailing," Journal of Agricultural Economics, Wiley Blackwell, vol. 54(1), pages 111-125.
- David Card, 1990.
"The impact of the Mariel boatlift on the Miami labor market,"
Industrial and Labor Relations Review,
ILR Review, Cornell University, ILR School, vol. 43(2), pages 245-257, January.
- David Card, 1989. "The Impact of the Mariel Boatlift on the Miami Labor Market," NBER Working Papers 3069, National Bureau of Economic Research, Inc.
- David Card, 1989. "The Impact of the Mariel Boatlift on the Miami Labor Market," Working Papers 633, Princeton University, Department of Economics, Industrial Relations Section..
- Sexton Richard J. & Zhang Mingxia & Chalfant James A., 2005. "Grocery Retailer Behavior in Perishable Fresh Produce Procurement," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 3(1), pages 1-23, February.
- Salop, Steven, 1976. "Information and Monopolistic Competition," American Economic Review, American Economic Association, vol. 66(2), pages 240-45, May.
- Salop, Steven, 1977. "The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 393-406, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If references are entirely missing, you can add them using this form.