IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Holiday Price Rigidity and Cost of Price Adjustment

  • Daniel Levy
  • Georg Mueller
  • Haipeng (Allan) Chen
  • Mark Bergen
  • Shantanu Dutta

The Thanksgiving-Christmas holiday period is a major sales period for U.S. retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers' questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. We argue that this rigidity is best explained by higher price adjustment costs the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and non-holiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://economics.emory.edu/home/assets/workingpapers/levy_08_02_paper.pdf
Download Restriction: no

Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0802.

as
in new window

Length:
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:emo:wp2003:0802
Contact details of provider: Web page: http://economics.emory.edu/home/journals/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. repec:ubc:bricol:96-02 is not listed on IDEAS
  2. Daniel Levy & Shantanu Dutta & Mark Bergen & Robert Venable, 1998. "Price adjustment at multiproduct retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(2), pages 81-120.
  3. 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, 05.
  4. Robert Barsky & Mark Bergen & Shantanu Dutta & Daniel Levy, 2002. "What Can the Price Gap between Branded and Private Label Products Tell Us about Markups?," Working Papers 2002-02, Bar-Ilan University, Department of Economics.
  5. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  6. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September.
  7. Georg Müller & Mark Bergen & Shantanu Dutta & Daniel Levy, 2005. "Private Label Price Rigidity during Holiday Periods," Macroeconomics 0503006, EconWPA.
  8. Dennis W. Carlton, 1987. "The Theory and the Facts of How Markets Clear: Is Industrial Organization Valuable for Understanding Macroeconomics?," NBER Working Papers 2178, National Bureau of Economic Research, Inc.
  9. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA.
  10. Laurence Ball & N. Gregory Mankiw, 1992. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc.
  11. Frederick C. Mills, 1927. "The Behavior of Prices," NBER Books, National Bureau of Economic Research, Inc, number mill27-1, May.
  12. Pashigian, B Peter & Bowen, Brian, 1991. "Why Are Products Sold on Sale? Explanations of Pricing Regularities," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1015-38, November.
  13. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
  14. Ball, Laurence & Romer, David, 1991. "Sticky Prices as Coordination Failure," American Economic Review, American Economic Association, vol. 81(3), pages 539-52, June.
  15. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Macroeconomics 0402020, EconWPA.
  16. Bedrossian, Arakel & Moschos, Demetrios, 1988. "Industrial Structure, Concentration and the Speed of Price Adjustment," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 459-76, June.
  17. Daniel Levy & Shantanu Dutta & Mark Bergen, 2002. "Heterogeneity in Price Rigidity: Evidence from a Case Study Using Micro-Level Data," Working Papers 2002-09, Bar-Ilan University, Department of Economics.
  18. Daniel Levy & Sourav Ray & Haipeng (Allan) Chen & Mark Bergen, 2007. "Asymmetric Price Adjustment in the Small," Emory Economics 0703, Department of Economics, Emory University (Atlanta).
  19. Geroski, P A, 1992. "Price Dynamics in UK Manufacturing: A Microeconomic View," Economica, London School of Economics and Political Science, vol. 59(236), pages 403-19, November.
  20. Danziger, Leif, 1983. "Price Adjustments with Stochastic Inflation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 699-707, October.
  21. Dennis W. Carlton, 1986. "The Rigidity of Prices," NBER Working Papers 1813, National Bureau of Economic Research, Inc.
  22. Peter E. Rossi & Judith A. Chevalier & Anil K. Kashyap, 2002. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," Yale School of Management Working Papers ysm291, Yale School of Management.
  23. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  24. Andrzej Skrzypacz & Jerzy D. Konieczny, 2005. "Search, Costly Price Adjustment and the Frequency of Price Changes – Theory and Evidence," 2005 Meeting Papers 782, Society for Economic Dynamics.
  25. Frederick C. Mills, 1927. "Introduction to "The Behavior of Prices"," NBER Chapters, in: The Behavior of Prices, pages 31-36 National Bureau of Economic Research, Inc.
  26. 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.
  27. 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.
  28. Eytan Sheshinski & Yoram Weiss (ed.), 1993. "Optimal Pricing, Inflation, and the Cost of Price Adjustment," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262193329, June.
  29. Mark J. Zbaracki & Mark Bergen & Daniel Levy, 2006. "The Anatomy of a Price Cut: Discovering Organizational Sources of the Costs of Price Adjustment," Emory Economics 0610, Department of Economics, Emory University (Atlanta).
  30. Ray C. Fair, 1989. "The Production Smoothing Model Is Alive and Well," Cowles Foundation Discussion Papers 896, Cowles Foundation for Research in Economics, Yale University.
  31. Shantanu Dutta & Mark Bergen & Daniel Levy, 2004. "Price Flexibility in Channels of Distribution: Evidence from Scanner Data," Macroeconomics 0402018, EconWPA.
  32. Belk, Russell W, 1976. " It's the Thought That Counts: A Signed Digraph Analysis of Gift-Giving," Journal of Consumer Research, University of Chicago Press, vol. 3(3), pages 155-62, December.
  33. Kashyap, Anil K, 1995. "Sticky Prices: New Evidence from Retail Catalogs," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 245-74, February.
  34. Frederick C. Mills, 1927. "Appendix to "The Behavior of Prices"," NBER Chapters, in: The Behavior of Prices, pages 441-586 National Bureau of Economic Research, Inc.
  35. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Examining Alternative Macroeconomic Theories," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 207-270.
  36. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  37. Alan S. Blinder, 1991. "Why are Prices Sticky? Preliminary Results from an Interview Study," NBER Working Papers 3646, National Bureau of Economic Research, Inc.
  38. Slade, Margaret E, 1998. "Optimal Pricing with Costly Adjustment: Evidence from Retail-Grocery Prices," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 87-107, January.
  39. Leif Danziger, 1999. "A Dynamic Economy with Costly Price Adjustments," American Economic Review, American Economic Association, vol. 89(4), pages 878-901, September.
  40. Ball, Laurence & Mankiw, N Gregory, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 161-93, February.
  41. Buckle, Robert A & Carlson, John A, 1998. "Inflation and Asymmetric Output Adjustments by Firms," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 215-28, April.
  42. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
  43. Saul Lach & Daniel Tsiddon, 2007. "Small price changes and menu costs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 649-656.
  44. Silver, Mick & Heravi, Saeed, 2001. "Scanner Data and the Measurement of Inflation," Economic Journal, Royal Economic Society, vol. 111(472), pages F383-404, June.
  45. Krane, Spencer D & Braun, Stephen N, 1991. "Production Smoothing Evidence from Physical-Product Data," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 558-81, June.
  46. 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.
  47. Gordon, Robert J, 1981. "Output Fluctuations and Gradual Price Adjustment," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 493-530, June.
  48. Shantanu Dutta & Mark Bergen & Daniel Levy & Robert Venable, 2005. "Menu Costs, Posted Prices, and Multiproduct Retailers," Macroeconomics 0505007, EconWPA.
  49. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
  50. Roger Gordon, 2006. "Editor, Journal of Economic Literature," American Economic Review, American Economic Association, vol. 96(2), pages 510-511, May.
  51. Fisher, Timothy C. G. & Konieczny, Jerzy D., 2006. "Inflation and Costly Price Adjustment: A Study of Canadian Newspaper Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 615-633, April.
  52. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
  53. Carpenter, Robert E & Levy, Daniel, 1998. "Seasonal Cycles, Business Cycles, and the Comovement of Inventory Investment and Output," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 331-46, August.
  54. Stiglitz, J E, 1979. "Equilibrium in Product Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 69(2), pages 339-45, May.
  55. David Genesove, 1999. "The Nominal Rigidity of Apartment Rents," NBER Working Papers 7137, National Bureau of Economic Research, Inc.
  56. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Scanner Data and Price Indexes," NBER Books, National Bureau of Economic Research, Inc, number feen03-1, May.
  57. Otnes, Cele & Lowrey, Tina M & Kim, Young Chan, 1993. " Gift Selection for Easy and Difficult Recipients: A Social Roles Interpretation," Journal of Consumer Research, University of Chicago Press, vol. 20(2), pages 229-44, September.
  58. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
  59. Caplin, Andrew & Leahy, John, 1991. "State-Dependent Pricing and the Dynamics of Money and Output," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 683-708, August.
  60. Owen, Ann & Trzepacz, David, 2002. "Menu costs, firm strategy, and price rigidity," Economics Letters, Elsevier, vol. 76(3), pages 345-349, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:emo:wp2003:0802. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sue Mialon)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.