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Rigidity, Dispersion and Discreteness in Chain Prices

Author

Listed:
  • Benjamin Eden

    (Department of Economics, Vanderbilt University)

  • Matthew Jaremski

    (Department of Economics, Vanderbilt University)

Abstract

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.

Suggested Citation

  • Benjamin Eden & Matthew Jaremski, 2009. "Rigidity, Dispersion and Discreteness in Chain Prices," Vanderbilt University Department of Economics Working Papers 0903, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:0903
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    References listed on IDEAS

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    Cited by:

    1. P. J. Glandon & Matthew Jaremski, 2014. "Sales and Firm Entry: The Case of Wal‐Mart," Southern Economic Journal, John Wiley & Sons, vol. 81(1), pages 168-192, July.
    2. Prince, Diogo de, 2018. "Are price hazard functions really decreasing functions in Brazil?," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 266-276.
    3. Isaac Baley & J. Andrés Blanco, 2016. "Menu costs, uncertainty cycles, and the propagation of nominal shocks," Economics Working Papers 1532, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Julio Blanco & Isaac Baley, 2013. "Learning to Price," 2013 Meeting Papers 663, Society for Economic Dynamics.

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    Keywords

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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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