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Price Flexibility In British Supermarkets: Moderation And Recession

  • Dixon, Huw

    (Cardiff Business School)

  • Seaton, Jonathan

    (Loughborough University)

  • Waterson, Michael

    (Department of Economics, University of Warwick)

This paper delivers a significantly different empirical perspective on micro pricing behaviour and its impact on macroeconomic processes than previous studies, largely resulting from the fact that our weekly price data for the three major British supermarkets spans a seven year period including the crisis years 2008-2010. We find that there is a large and significant change in the behaviour of prices from 2008 onwards: prices change more frequently and the average duration of price spells declines significantly. Several of our findings run strongly counter to established empirical regularities, in particular the high overall frequency of regular or reference price changes we uncover, the greater intensity of change in more turbulent times and the numerical dominance of price falls over rises. The pricing behaviour revealed also significantly challenges the implicit assumption that prices are tracking cost changes. JEL classification: E30 ; E31 ; L81

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 1041.

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Date of creation: 2014
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Handle: RePEc:wrk:warwec:1041
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  1. Álvarez, L. & Dias, D. & Dhyne, E. & Hoffmann, J. & Jonker, N. & Le Bihan, H. & Lünnemann, P. & Rumler, F. & Veronese, G. & Vilmunen, J., 2005. "Price Setting in the Euro Area: Some Stylized Facts from Individual Consumer Price Data," Working papers 136, Banque de France.
  2. 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.
  3. Rachel Griffith & Ephraim Leibtag & Andrew Leicester & Aviv Nevo, 2009. "Consumer Shopping Behavior: How Much Do Consumers Save?," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 99-120, Spring.
  4. Eyal Baharad & Benjamin Eden, 2004. "Price Rigidity and Price Dispersion: Evidence from Micro Data," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 613-641, July.
  5. Alberto Cavallo, 2015. "Scraped Data and Sticky Prices," NBER Working Papers 21490, National Bureau of Economic Research, Inc.
  6. Huw Dixon & Engin Kara, 2010. "Can We Explain Inflation Persistence in a Way that Is Consistent with the Microevidence on Nominal Rigidity?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(1), pages 151-170, 02.
  7. Dixon, Huw & Franklin, Jeremy & Millard, Stephen, 2014. "Sectoral shocks and monetary policy in the United Kingdom," Bank of England working papers 499, Bank of England.
  8. Philip Bunn & Colin Ellis, 2012. "Examining The Behaviour Of Individual UK Consumer Prices," Economic Journal, Royal Economic Society, vol. 122(558), pages F35-F55, 02.
  9. Huw Dixon & Hervé Le Bihan, 2012. "Generalised Taylor and Generalised Calvo Price and Wage Setting: Micro‐evidence with Macro Implications," Economic Journal, Royal Economic Society, vol. 122(560), pages 532-554, 05.
  10. Joseph Vavra, 2011. "Inflation Dynamics and Time-Varying Uncertainty: New Evidence and an Ss Interpretation," 2011 Meeting Papers 126, Society for Economic Dynamics.
  11. Etienne Gagnon, 2009. "Price Setting during Low and High Inflation: Evidence from Mexico," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 1221-1263.
  12. 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.
  13. repec:ecj:econjl:v:122:y:2012:i::p:532-554 is not listed on IDEAS
  14. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
  15. Seaton, Jonathan S. & Waterson, Michael, 2012. "Identifying and characterising price leadership in British supermarkets," The Warwick Economics Research Paper Series (TWERPS) 987, University of Warwick, Department of Economics.
  16. repec:oup:qjecon:v:129:y:2013:i:1:p:215-258 is not listed on IDEAS
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