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Rigidity, Dispersion and Discreteness in Chain Prices

  • Benjamin Eden

    ()

    (Department of Economics, Vanderbilt University)

  • Matthew Jaremski

    ()

    (Department of Economics, Vanderbilt University)

This paper studies price setting within a chain of grocery stores, using a scanner database that contains observations of retail prices for 435 products within 75 stores over 121 weeks. We find price dispersion within the chain. Stores differentiate themselves by the prices of relatively few items. Typically most prices in the store are at the mode of the cross sectional price distribution, some are above the mode and some are below the mode. The probability of a price change is 3.6% when the price is at the mode and 76.2% when the price is not at the mode. We explain the apparent attraction to the mode in terms of a model in which price discreteness plays an important role but there is no inertia. We also find that the probability of a price change is higher when the deviation from the mean of the cross sectional price distribution is large. But unlike conventional wisdom, the probability of a price change is higher for young prices.

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File URL: http://www.accessecon.com/pubs/VUECON/vu09-w03R.pdf
File Function: Revised version, 2009
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0903.

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Date of creation: Mar 2009
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Handle: RePEc:van:wpaper:0903
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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