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Pass-Through in Retail and Wholesale

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Author Info
Emi Nakamura

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Abstract

This paper studies how prices comove across products, firms and locations to gauge the relative importance of retailer versus manufacturer-level shocks in determining prices. I make use of a large panel data set on prices for a cross-section of retailers in the U.S. I analyze prices at the barcode or "Universal Product Code'' (UPC) level for individual stores. I find that only 16% of the variation in prices is common across stores selling an identical product. 65% of the price variation is common to stores within a particular retail chain (but not across retail chains), while 17% is completely idiosyncratic to the store and product. Product categories with frequent temporary "sales'' exhibit a disproportionate amount of completely idiosyncratic price variation. My results suggest that most of the observed price variation arises from retail-level rather than manufacturer-level demand and supply shocks. However, the behavior of prices is difficult to relate to observed variation in costs and demand at the retail level. This suggests that retail prices may vary largely as a consequence of dynamic pricing strategies on the part of retailers or manufacturers, rather than static demand and supply shocks.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13965.

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Date of creation: Apr 2008
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Handle: RePEc:nbr:nberwo:13965

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Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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  1. Daniel Hosken & David Reiffen, 2004. "Patterns of Retail Price Variation," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 128-146, Spring.
  2. Engel, Charles, 1993. "Real exchange rates and relative prices : An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 35-50, August. [Downloadable!] (restricted)
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  3. Aguirregabiria, Victor, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Blackwell Publishing, vol. 66(2), pages 275-308, April. [Downloadable!] (restricted)
  4. Sobel, Joel, 1984. "The Timing of Sales," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 353-68, July. [Downloadable!] (restricted)
  5. Pinelopi K. Goldberg & Rebecca Hellerstein, 2007. "A Framework for Identifying the Sources of Local-Currency Price Stability with an Empirical Application," NBER Working Papers 13183, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September. [Downloadable!] (restricted)
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  7. Christian Broda & David E. Weinstein, 2007. "Product Creation and Destruction: Evidence and Price Implications," NBER Working Papers 13041, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September. [Downloadable!] (restricted)
  9. Lazear, Edward P, 1986. "Retail Pricing and Clearance Sales," American Economic Review, American Economic Association, vol. 76(1), pages 14-32, March. [Downloadable!] (restricted)
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