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Holiday Price Rigidity and Cost of Price Adjustment

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Author Info
Daniel Levy ()
Georg Müller
Haipeng (Allan) Chen
Mark Bergen
Shantanu Dutta

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Abstract

The Thanksgiving-Christmas holiday period is a major sales period for US 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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  25. Mark Bergen & Daniel Levy & Sourav Ray & Paul H. Rubin & Benjamin Zeliger, 2008. "When Little Things Mean a Lot: On the Inefficiency of Item-Pricing Laws," Journal of Law & Economics, University of Chicago Press, vol. 51(2), pages 209-250, 05. [Downloadable!] (restricted)
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  34. Dutta, Shantanu & Bergen, Mark & Levy, Daniel, 2002. "Price flexibility in channels of distribution: Evidence from scanner data," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1845-1900, September. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, 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.)

  1. Ellingsen, Tore & Friberg, Richard & Hassler, John, 2006. "Menu Costs and Asymmetric Price Adjustment," CEPR Discussion Papers 5749, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Mark Bergen & Daniel Levy & Sourav Ray & Paul Rubin & Benjamin Zeliger, 2004. "When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws," Emory Economics 0404, Department of Economics, Emory University (Atlanta). [Downloadable!]
    Other versions:
  3. Georg Müller & Mark Bergen & Shantanu Dutta & Daniel Levy, 2006. "Private label price rigidity during holiday periods," Applied Economics Letters, Taylor and Francis Journals, vol. 13(1), pages 57-62, January. [Downloadable!] (restricted)
    Other versions:
  4. Daniel Levy & Dongwon Lee & Haipeng Chen & Robert Kauffman & Mark Bergen, 2008. "Price Points and Price Rigidity," Emory Economics 0809, Department of Economics, Emory University (Atlanta). [Downloadable!]
    Other versions:
  5. Matthias R. Fengler & Joachim K. Winter, 2007. "Price variability and price dispersion in a stable monetary environment: evidence from German retail markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 789-801. [Downloadable!]
    Other versions:
  6. Jerzy Konieczny & Fabio Rumler, 2007. "Regular Adjustment. Theory and Evidence," Kiel Working Papers 1352, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  7. Jerzy (Jurek) D. Konieczny & Fabio Rumler, 2006. "Regular adjustment - theory and practice," Working Paper Series 669, European Central Bank. [Downloadable!]
  8. Georg Müller & Mark Bergen & Shantanu Dutta & Daniel Levy, 2007. "Non-price rigidity and cost of adjustment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 817-832. [Downloadable!]
  9. D. Cornille & M. Dossche, 2006. "The Patterns and Determinants of Price Setting in the Belgian Industry," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 06/386, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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  10. Alexander L. Wolman, 2007. "The frequency and costs of individual price adjustment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(6), pages 531-552. [Downloadable!]
    Other versions:
  11. Daniel Levy, 2007. "Price rigidity and flexibility: new empirical evidence," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 639-647. [Downloadable!]
    Other versions:
  12. Georg Müller & Mark Bergen & Shantanu Dutta & Daniel Levy, 2006. "Holiday Non-Price Rigidity and Cost of Adjustment," Emory Economics 0612, Department of Economics, Emory University (Atlanta). [Downloadable!]
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