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Pricing Regimes in Disaggregated Data

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  • Luminita Stevens

    (Columbia University)

Abstract

This paper develops a test for changes in the distribution of good-level prices over time and applies it to grocery store data. The method is based on the Kolmogorov-Smirnov statistic, which measures the distance between two empirical distributions. This test is robust to different data generating processes and does not require specific a priori knowledge about patterns in the data. I find that the typical pricing regime lasts seven months yet consists of a small number of distinct prices: for the large majority of regimes, five or fewer unique prices account for more than 90% of the regime. The test provides a natural way to investigate the prevalence of sticky pricing plans, since the identified change points serve as estimates of transitions to new plans. I find strong evidence in favor of rigid pricing plans: in addition to rigidity of the modal price of each regime, 76% of product series exhibit some degree of within-regime rigidity among non-modal prices; conversely, only 18% of series consist entirely of one-to-flex regimes in which prices flexibly deviate from the rigid mode; the remaining 5% consist of single sticky price regimes.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1389.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1389

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  1. Kevin Sheedy & Bernardo Guimaraes, 2009. "Sales and Monetary Policy," 2009 Meeting Papers 365, Society for Economic Dynamics.
  2. Abe, Naohito & Tonogi, Akiyuki, 2010. "Micro and macro price dynamics in daily data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 716-728, September.
  3. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. Peter J. Klenow & Benjamin A. Malin, 2010. "Microeconomic Evidence on Price-Setting," NBER Working Papers 15826, National Bureau of Economic Research, Inc.
  5. Daniel Levy & Georg Muller & Shantanu Dutta & Mark Bergen, 2004. "Holiday Price Rigidity and Cost of Price Adjustment," Macroeconomics 0402019, EconWPA, revised 10 Jun 2005.
  6. Burstein, Ariel Tomas & Hellwig, Christian, 2007. "Prices and Market Shares in a Menu Cost Model," CEPR Discussion Papers 6504, C.E.P.R. Discussion Papers.
  7. Andrew C. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," NBER Working Papers 2311, National Bureau of Economic Research, Inc.
  8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  9. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  10. 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.
  11. Filip Matejka, 2010. "Rationally Inattentive Seller: Sales and Discrete Pricing," 2010 Meeting Papers 420, Society for Economic Dynamics.
  12. Chahrour, Ryan A., 2011. "Sales and price spikes in retail scanner data," Economics Letters, Elsevier, vol. 110(2), pages 143-146, February.
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