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Pricing Better

Author

Listed:
  • Daniel Levy

    () (Bar-Ilan University)

  • Mark Bergen

Abstract

Electronic shelf label (ESL) is an emerging price display technology around the world. While these new technologies require non-trivial investments by the retailer, they also promise significant operational efficiencies in the form of savings in material, labor and managerial costs. The presumed benefits of ESL, for example, tend to be focused around lower price adjustment costs (PAC), also known as menu costs. However, ESL not only can save PAC but may also enable the retailer to price “better,” generating greater value for the transacting parties. Thus, ESL’s strategic impact for retailers occurs between claiming these presumed efficiencies and realizing the value generating potential. Using transactions data from a longitudinal field experiment, we assess such impact of ESL by studying how it shapes retail pricing practices and outcomes. Our general finding is that ESL plays an enabling role to the retailer’s strategy – thereby enhancing the retailer’s sales and revenues. The price adjustment efficiencies of ESL allows retailers to do better waste management, price discovery, as well as leveraging value in information for consumers. However, ESL’s impact on prices is nuanced, based on the retail strategy (EDLP, HI-LO) being used. Papers quantifying emerging technologies’ impact on retail outcomes are sparse, even fewer investigating their role in pricing. To the best of our knowledge, ours is the first study to explore and quantify how ESL interacts with retail strategy to affect retail pricing practices and retail outcomes.

Suggested Citation

  • Daniel Levy & Mark Bergen, 2019. "Pricing Better," Working Papers 2019-07, Bar-Ilan University, Department of Economics.
  • Handle: RePEc:biu:wpaper:2019-07
    as

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    File URL: https://econ.biu.ac.il/files/economics/working-papers/2019-07.pdf
    File Function: Working paper
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    Other versions of this item:

    • Ray, Sourav & Wang, Li & Levy, Daniel & Bergen, Mark, 2019. "Pricing Better," EconStor Preprints 201843, ZBW - Leibniz Information Centre for Economics.
    • Sourav Ray & Li Wang & Daniel Levy & Mark Bergen, 2019. "Pricing Better," Working Paper series 19-16, Rimini Centre for Economic Analysis.
    • Ray, Sourav & Wang, Li & Levy, Daniel & Bergen, Mark, 2019. "Pricing Better," MPRA Paper 95596, University Library of Munich, Germany.
    • Ray, Sourav & Wang, Li & Levy, Daniel & Bergen, Mark, 2019. "Pricing Better," MPRA Paper 95654, University Library of Munich, Germany.
    • Daniel Levy & Sourav Ray & Li Wang & Mark Bergen, 2019. "Pricing Better," Working Papers 008-19 JEL Codes: M31, E3, International School of Economics at TSU, Tbilisi, Republic of Georgia.

    References listed on IDEAS

    as
    1. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
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    3. Lach, Saul & Tsiddon, Daniel, 1996. "Staggering and Synchronization in Price-Setting: Evidence from Multiproduct Firms," American Economic Review, American Economic Association, vol. 86(5), pages 1175-1196, December.
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    5. Adam Reiff & Peter Karadi, 2011. "Large Shocks in Menu Cost Models," 2011 Meeting Papers 884, Society for Economic Dynamics.
    6. Mark Bergen & Daniel Levy & Sourav Ray & Paul H. Rubin & Benjamin Zeliger, 2008. "When Little Things Mean a Lot: On the Inefficiency of Item-Pricing Laws," Journal of Law and Economics, University of Chicago Press, vol. 51(2), pages 209-250, May.
    7. Jeffrey R. Campbell & Benjamin Eden, 2014. "Rigid Prices: Evidence From U.S. Scanner Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 423-442, May.
    8. repec:eee:jouret:v:87:y:2011:i:s1:p:s43-s52 is not listed on IDEAS
    9. Sourav Ray & Haipeng (Allan) Chen & Mark E. Bergen & Daniel Levy, 2006. "Asymmetric Wholesale Pricing: Theory and Evidence," Marketing Science, INFORMS, vol. 25(2), pages 131-154, 03-04.
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    12. Chen Yeh & David Argente, 2016. "A Menu Cost Model with Price Experimentation," 2016 Meeting Papers 1515, Society for Economic Dynamics.
    13. Laurent Baudry & Hervé Le Bihan & Patrick Sevestre & Sylvie Tarrieu, 2007. "What do Thirteen Million Price Records have to Say about Consumer Price Rigidity?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(2), pages 139-183, April.
    14. Robert J. Barro, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 17-26.
    15. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    16. Margaret E. Slade & G.R.E.Q.A.M., 1998. "Optimal Pricing with Costly Adjustment: Evidence from Retail-Grocery Prices," Review of Economic Studies, Oxford University Press, vol. 65(1), pages 87-107.
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    18. Bastien Soutjis & Franck Cochoy & J. Hagberg, 2017. "An ethnography of Electronic Shelf Labels: The resisted digitalization of prices in contemporary supermarkets," Post-Print hal-01708416, HAL.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Retailing; Pricing; EDLP; HI-LO; Dynamic Capability; Menu Costs; Price Adjustment; Price Elasticity; Price Discovery;

    JEL classification:

    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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