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Empirical investigation of price setting and quantity surcharges in the German food sector

Author

Listed:
  • Awudu Abdulai

    (Department of Food Economics and Consumption Studies, University of Kiel, Olshausenstrasse 40, D-24098 Kiel, Germany)

  • Christian Kuhlgatz

    (Department of Food Economics and Consumption Studies, University of Kiel, Olshausenstrasse 40, D-24098 Kiel, Germany)

  • Silke Schmitz

    (Department of Food Economics and Consumption Studies, University of Kiel, Olshausenstrasse 40, D-24098 Kiel, Germany)

Abstract

In this study, the authors examined the incidence and determinants of quantity price discounts and quantity price surcharges in the German food sector through a bivariate probit model, using recent consumer scanner survey data. Selectivity bias was corrected for in estimating the magnitude of quantity price surcharges and quantity price discounts, using Heckman's procedure. The findings reveal that almost 10% of the investigated products attract higher unit prices for larger package sizes, although the extent of price surcharges varied among product categories. Quantity price discounts were found to dominate in the firms' pricing strategies. The econometric results showed that the number of package sizes, the average package size, the packaging and storage forms, as well as the price image of a product are all significant determinants of the decision to impose both quantity price surcharges and quantity price discounts. [JEL classification: D40, L11] © 2009 Wiley Periodicals, Inc.

Suggested Citation

  • Awudu Abdulai & Christian Kuhlgatz & Silke Schmitz, 2009. "Empirical investigation of price setting and quantity surcharges in the German food sector," Agribusiness, John Wiley & Sons, Ltd., vol. 25(3), pages 331-350.
  • Handle: RePEc:wly:agribz:v:25:y:2009:i:3:p:331-350
    DOI: 10.1002/agr.20205
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    References listed on IDEAS

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    1. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
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    3. Cohen, Andrew, 2008. "Package size and price discrimination in the paper towel market," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 502-516, March.
    4. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-239, March.
    5. Carlson, John A & Gieseke, Robert J, 1983. " Price Search in a Product Market," Journal of Consumer Research, Oxford University Press, vol. 9(4), pages 357-365, March.
    6. Schindler, Robert M & Kirby, Patrick N, 1997. " Patterns of Rightmost Digits Used in Advertised Prices: Implications for Nine-Ending Effects," Journal of Consumer Research, Oxford University Press, vol. 24(2), pages 192-201, September.
    7. Ron Borzekowski & Raphael Thomadsen & Charles Taragin, 2009. "Competition and price discrimination in the market for mailing lists," Quantitative Marketing and Economics (QME), Springer, vol. 7(2), pages 147-179, June.
    8. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    9. Roger R. Betancourt, 2004. "The Economics of Retailing and Distribution," Books, Edward Elgar Publishing, number 3511.
    10. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
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    Citations

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    Cited by:

    1. Reggiani, Carlo, 2011. "Size (of the product) matters," Journal of Economics and Business, Elsevier, vol. 63(4), pages 329-344, July.

    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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