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Holiday Price Rigidity and Cost of Price Adjustment

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  • Daniel Levy
  • Georg Mueller
  • Haipeng (Allan) Chen
  • Mark Bergen
  • Shantanu Dutta

Abstract

The Thanksgiving-Christmas holiday period is a major sales period for U.S. retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers' questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. We argue that this rigidity is best explained by higher price adjustment costs the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and non-holiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity.

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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0802.

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Date of creation: Feb 2008
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Handle: RePEc:emo:wp2003:0802

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