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Price variability or rigidity in the food-retailing sector? Theoretical analysis and evidence from German scanner data

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  • Herrmann, Roland
  • Möser, Anke

Abstract

In many industrialized countries, the grocery-retailing sector exhibits a strong and increasing market concentration. Hence, it is important to understand retail pricing for many questions related to market power in the marketing chain and to agricultural and food policies. We analyze intertemporal pricing of grocery retailers in Germany with a large set of scanner data for processed foods. In theory, food prices could be rather variable, e.g. due to fluctuating commodity prices in a competitive world, or rather rigid, e.g. due to price adjustment costs. We elaborate that retail sales are crucial and raise food price variability at the points of sale. Despite this, prices are rather rigid and often do not change for many weeks. Moreover, pricing strategies for identical brands vary strongly across retailers. Retailers seem to have differential pricing strategies and, thus, market power. This casts substantial doubt on the assumption of a competitive price transmission in the marketing channel underlying most analyses in agricultural economics. --

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Bibliographic Info

Paper provided by Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU) in its series Discussion Papers with number 11.

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Date of creation: 2003
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Handle: RePEc:zbw:zeudps:26464

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Web page: http://www.uni-giessen.de/cms/faculties/research-centers/zeu-en/view
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Keywords: Grocery retailing sector; pricing patterns; sales; price rigidity; scanner data;

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References

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  1. Saul Lach & Daniel Tsiddon, 1994. "Staggering and Synchronization in Price-Setting: Evidence from Multipro-duct Firms," NBER Working Papers 4759, National Bureau of Economic Research, Inc.
  2. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  3. Elizabeth Powers & Nicholas Powers, 2001. "The Size and Frequency of Price Changes: Evidence from Grocery Stores," Review of Industrial Organization, Springer, Springer, vol. 18(4), pages 397-416, June.
  4. Paolo Buccirossi & StÈphan Marette & Alessandra Schiavina, 2002. "Competition policy and the agribusiness sector in the European Union," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 29(3), pages 373-397, July.
  5. Cuddy, John D A & Della Valle, P A, 1978. "Measuring the Instability of Time Series Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 40(1), pages 79-85, February.
  6. Steve McCorriston, 2002. "Why should imperfect competition matter to agricultural economists?," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 29(3), pages 349-371, July.
  7. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  8. Daniel Hosken & David Reiffen, 2001. "Multiproduct retailers and the sale phenomenon," Agribusiness, John Wiley & Sons, Ltd., vol. 17(1), pages 115-137.
  9. Levy, Daniel, et al, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 791-825, August.
  10. Slade, Margaret E, 1998. "Optimal Pricing with Costly Adjustment: Evidence from Retail-Grocery Prices," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 65(1), pages 87-107, January.
  11. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  12. Little, John D C & Shapiro, Jeremy F, 1980. "A Theory for Pricing Nonfeatured Products in Supermarkets," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 53(3), pages S199-209, July.
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Cited by:
  1. Herrmann, Roland & Moeser, Anke, 2005. "Psychological Prices and Price Rigidity in Grocery Retailing: Analysis of German Scanner Data," 2005 Annual meeting, July 24-27, Providence, RI, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19471, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Sascha A. Weber & Sven M. Anders, 2007. "Price rigidity and market power in German retailing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 737-749.
  3. Egbert, Henrik & Fischer, Gundula & Bredl, Sebastian, 2009. "Advertisements or friends? Formal and informal recruitment methods in Tanzania," Discussion Papers 46, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
  4. Herrmann Roland & Moeser Anke & Weber Sascha Alexander, 2005. "Price Rigidity in the German Grocery-Retailing Sector: Scanner-Data Evidence on Magnitude and Causes," Journal of Agricultural & Food Industrial Organization, De Gruyter, De Gruyter, vol. 3(1), pages 1-37, February.
  5. Roland Herrmann & Anke Moeser, 2006. "Do psychological prices contribute to price rigidity? Evidence from German scanner data on food brands," Agribusiness, John Wiley & Sons, Ltd., vol. 22(1), pages 51-67.

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