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Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data

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Author Info
Peter E. Rossi () (Graduate School of Business)
Judith A. Chevalier () (School of Management)
Anil K. Kashyap () (Graduate School of Business)

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Abstract

We examine retail and wholesale prices for a large supermarket chain over seven and one-half years. We find that prices fall on average during seasonal demand peaks for a product, largely due to changes in retail margins. Retail margins for specific goods fall during peak demand periods for that good, even if these periods do not coincide with aggregate demand peaks for the retailer. This is consistent with "loss leader" models of retailer competition. Models stressing cyclical demand elasticities or cyclical firm conduct are less consistent with our findings. Manufacturer behavior plays a limited role in the counter-cyclicality of prices.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm291.

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Date of creation: 10 Sep 2002
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Handle: RePEc:ysm:somwrk:ysm291

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Related research
Keywords: Pricing; Seasonality; Retail; Competition;

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  1. MacDonald, James M, 2000. "Demand, Information, and Competition: Why Do Food Prices Fall at Seasonal Demand Peaks?," Journal of Industrial Economics, Blackwell Publishing, vol. 48(1), pages 27-45, March. [Downloadable!] (restricted)
  2. Nelson, Philip & Siegfried, John J & Howell, John, 1992. "A Simultaneous Equations Model of Coffee Brand Pricing and Advertising," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 54-63, February. [Downloadable!] (restricted)
  3. Bagwell, Kyle, 1987. "Introductory Price as a Signal of Cost in a Model of Repeat Business," Review of Economic Studies, Blackwell Publishing, vol. 54(3), pages 365-84, July. [Downloadable!] (restricted)
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  4. Bils, Mark, 1989. "Pricing in a Customer Market," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 699-718, November. [Downloadable!] (restricted)
  5. Warner, Elizabeth J & Barsky, Robert B, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 321-52, May. [Downloadable!] (restricted)
  6. John Haltiwanger & Joseph E. Harrington Jr., 1991. "The Impact of Cyclical Demand Movements on Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 89-106, Spring. [Downloadable!] (restricted)
  7. Severin Boreinstein & Andrea Shepard, 1996. "Dynamic Pricing in Retail Gasoline Markets," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 429-451, Autumn. [Downloadable!] (restricted)
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  8. Glenn Ellison, 1994. "Theories of Cartel Stability and the Joint Executive Committee," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 37-57, Spring. [Downloadable!] (restricted)
  9. Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January. [Downloadable!]
  10. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October. [Downloadable!] (restricted)
  11. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January. [Downloadable!] (restricted)
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  12. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July. [Downloadable!] (restricted)
  13. Ghosal, Vivek, 2000. "Product market competition and the industry price-cost markup fluctuations:: role of energy price and monetary changes," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 415-444, April. [Downloadable!] (restricted)
  14. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December. [Downloadable!] (restricted)
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  15. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring. [Downloadable!] (restricted)
  16. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June. [Downloadable!] (restricted)
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