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Price Flexibility In British Supermarkets: Moderation And Recession

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  • Dixon, Huw

    (Cardiff Business School)

  • Seaton, Jonathan

    (Loughborough University)

  • Waterson, Michael

    (Department of Economics, University of Warwick)

Abstract

This paper delivers a significantly different empirical perspective on micro pricing behaviour and its impact on macroeconomic processes than previous studies, largely resulting from the fact that our weekly price data for the three major British supermarkets spans a seven year period including the crisis years 2008-2010. We find that there is a large and significant change in the behaviour of prices from 2008 onwards: prices change more frequently and the average duration of price spells declines significantly. Several of our findings run strongly counter to established empirical regularities, in particular the high overall frequency of regular or reference price changes we uncover, the greater intensity of change in more turbulent times and the numerical dominance of price falls over rises. The pricing behaviour revealed also significantly challenges the implicit assumption that prices are tracking cost changes. Key words: Micro pricing ; price flexibility ; regular prices ; menu costs JEL classification: E30 ; E31 ; L81

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1041.

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Date of creation: 2014
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Handle: RePEc:wrk:warwec:1041

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  1. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
  2. Etienne Gagnon, 2007. "Price setting during low and high inflation: evidence from Mexico," International Finance Discussion Papers 896, Board of Governors of the Federal Reserve System (U.S.).
  3. Dixon, Huw David & Kara, Engin, 2008. "Can we explain inflation persistence in a way that is consistent with the micro-evidence on nominal rigidity?," Cardiff Economics Working Papers E2008/22, Cardiff University, Cardiff Business School, Economics Section.
  4. Philip Bunn & Colin Ellis, 2012. "Examining The Behaviour Of Individual UK Consumer Prices," Economic Journal, Royal Economic Society, vol. 122(558), pages F35-F55, 02.
  5. Huw D. Dixon & Hervé Le Bihan, 2010. "Generalized Taylor and Generalized Calvo Price and Wage-Setting: Micro Evidence with Macro Implications," CESifo Working Paper Series 3119, CESifo Group Munich.
  6. Eyal Baharad & Benjamin Eden, 2003. "Price Rigidity and Price Dispersion: Evidence from Micro Data," Vanderbilt University Department of Economics Working Papers 0321, Vanderbilt University Department of Economics.
  7. Joseph Vavra, 2011. "Inflation Dynamics and Time-Varying Uncertainty: New Evidence and an Ss Interpretation," 2011 Meeting Papers 126, Society for Economic Dynamics.
  8. Seaton, Jonathan S. & Waterson, Michael, 2012. "Identifying and characterising price leadership in British supermarkets," The Warwick Economics Research Paper Series (TWERPS) 987, University of Warwick, Department of Economics.
  9. repec:ecj:econjl:v:122:y:2012:i::p:532-554 is not listed on IDEAS
  10. Joseph Vavra, 2013. "Inflation Dynamics and Time-Varying Volatility: New Evidence and an Ss Interpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 215-258.
  11. Rachel Griffith & Ephraim Leibtag & Andrew Leicester & Aviv Nevo, 2009. "Consumer Shopping Behavior: How Much Do Consumers Save?," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 99-120, Spring.
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