IDEAS home Printed from https://ideas.repec.org/p/wrk/warwec/975.html
   My bibliography  Save this paper

Pricing in inflationary times- the penny drops

Author

Listed:
  • Chakraborty, Ratula

    (Norwich Business School, University of East Anglia)

  • Dobson, Paul

    (School of Business and Economics, Loughborough University)

  • Seaton, Jonathan S.

    (Corresponding Author, Department of Economics, University of Warwick,)

  • Waterson, Michael

    (Department of Economics, University of Warwick, JEL classification: L16 ; L81 ; E31 Key words: Pricing behaviour ; supermarket prices ; inflationary behaviour ; price indexes)

Abstract

We investigate micro pricing behaviour in groceries (the UK’s most important consumer market) over eight years including the inflationary period of early 2008. We find behaviour sharply distinguished from most previous work, namely that overall basket prices rise but more individual prices fall than rise! This is consistent with retailers obscuring the fact of rising basket prices. We employ a significant new source of data that captures cross-competitor interplay in prices at a very detailed level. Unusually but importantly, our work takes into account that consumers buy baskets of goods, rather than individual products, when shopping at supermarkets.

Suggested Citation

  • Chakraborty, Ratula & Dobson, Paul & Seaton, Jonathan S. & Waterson, Michael, 2011. "Pricing in inflationary times- the penny drops," The Warwick Economics Research Paper Series (TWERPS) 975, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:975
    as

    Download full text from publisher

    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2011/twerp_975.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Peter J. Klenow & Oleksiy Kryvtsov, 2008. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(3), pages 863-904.
    2. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
    3. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    4. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 505-540.
    5. Smith, Howard & Thanassoulis, John, 2012. "Upstream uncertainty and countervailing power," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 483-495.
    6. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 107-120.
    7. Gabaix, Xavier & Laibson, David & Li, Deyuan & Li, Hongyi & Resnick, Sidney & de Vries, Casper G., 2016. "The impact of competition on prices with numerous firms," Journal of Economic Theory, Elsevier, vol. 165(C), pages 1-24.
    8. Seaton, Jonathan S. & Waterson, Michael, 2013. "Identifying and characterising price leadership in British supermarkets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 392-403.
    9. Virgiliu Midrigan, 2011. "Menu Costs, Multiproduct Firms, and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(4), pages 1139-1180, July.
    10. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 97-135.
    11. Hosken Daniel & Reiffen David, 2007. "Pricing Behavior of Multiproduct Retailers," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-45, November.
    12. Giliola Frey & Matteo Manera, 2007. "Econometric Models Of Asymmetric Price Transmission," Journal of Economic Surveys, Wiley Blackwell, vol. 21(2), pages 349-415, April.
    13. Chen, Haipeng (Allan) & Levy, Daniel & Ray, Sourav & Bergen, Mark, 2008. "Asymmetric price adjustment in the small," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 728-737, May.
    14. 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.
    15. Emi Nakamura & Jón Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 133-163, May.
    16. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
    17. David Berger & Joseph Vavra, 2015. "Consumption Dynamics During Recessions," Econometrica, Econometric Society, vol. 83, pages 101-154, January.
    18. Alvarez González, Luis Julián, 2008. "What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-36.
    19. Stiving, Mark & Winer, Russell S, 1997. " An Empirical Analysis of Price Endings with Scanner Data," Journal of Consumer Research, Oxford University Press, vol. 24(1), pages 57-67, June.
    20. Emi Nakamura, 2008. "Pass-Through in Retail and Wholesale," American Economic Review, American Economic Association, vol. 98(2), pages 430-437, May.
    21. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August.
    22. Martin Eichenbaum & Nir Jaimovich & Sergio Rebelo & Josephine Smith, 2014. "How Frequent Are Small Price Changes?," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(2), pages 137-155, April.
    23. Ellis, Colin, 2009. "Do supermarket prices change from week to week?," Bank of England working papers 378, Bank of England.
    24. Alba, Joseph W, et al, 1999. " The Effect of Discount Frequency and Depth on Consumer Price Judgments," Journal of Consumer Research, Oxford University Press, vol. 26(2), pages 99-114, September.
    25. Chakraborty, Ratula & Dobson, Paul W. & Seaton, Jonathan S. & Waterson, Michael, 2015. "Pricing in inflationary times: The penny drops," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 71-86.
    26. 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.
    27. Cheng-Te Lee & Chung-Jen Wu & Yi-Chen Li, 2010. "Globalization, Wage Inequality and Unemployment," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 6(1), pages 1-15, January.
    28. Nakamura, Alice O. & Nakamura, Emi & Nakamura, Leonard I., 2011. "Price dynamics, retail chains and inflation measurement," Journal of Econometrics, Elsevier, vol. 161(1), pages 47-55, March.
    29. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, March.
    30. Jochen Meyer & Stephan Cramon-Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 581-611.
    31. Howard Smith, 2004. "Supermarket Choice and Supermarket Competition in Market Equilibrium," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 235-263.
    32. Paul B. Ellickson & Sanjog Misra, 2008. "Supermarket Pricing Strategies," Marketing Science, INFORMS, vol. 27(5), pages 811-828, 09-10.
    33. Martin Berka & Michael B. Devereux & Thomas Rudolph, 2011. "Price Setting in a Leading Swiss Online Supermarket," NBER Working Papers 17126, National Bureau of Economic Research, Inc.
    34. Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July.
    35. Judith A. Chevalier & Anil K. Kashyap, 2011. "Best Prices," NBER Working Papers 16680, National Bureau of Economic Research, Inc.
    36. Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 305-339.
    37. Manoj Thomas & Vicki Morwitz, 2005. "Penny Wise and Pound Foolish: The Left-Digit Effect in Price Cognition," Journal of Consumer Research, Oxford University Press, vol. 32(1), pages 54-64, June.
    38. Martin Eichenbaum & Nir Jaimovich & Sergio Rebelo, 2011. "Reference Prices, Costs, and Nominal Rigidities," American Economic Review, American Economic Association, vol. 101(1), pages 234-262, February.
    39. David Laibson & Xavier Gabaix, 2004. "Competition and Consumer Confusion," Econometric Society 2004 North American Summer Meetings 663, Econometric Society.
    40. Abe, Naohito & Tonogi, Akiyuki, 2010. "Micro and macro price dynamics in daily data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 716-728, September.
    41. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, September.
    42. Dixon, Huw & Seaton, Jonathan & Waterson, Michael, 2014. "Price Flexibility In British Supermarkets: Moderation And Recession," The Warwick Economics Research Paper Series (TWERPS) 1041, University of Warwick, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chakraborty, Ratula & Dobson, Paul W. & Seaton, Jonathan S. & Waterson, Michael, 2015. "Pricing in inflationary times: The penny drops," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 71-86.
    2. Pawel Baranowski & Zbigniew Kuchta, 2015. "Changes in nominal rigidities in Poland – a regime switching DSGE perspective," Lodz Economics Working Papers 6/2015, University of Lodz, Faculty of Economics and Sociology.
    3. Paul W. Dobson & Sang-Hyun Kim & Hao Lan, 2016. "Identifying Price-Leadership Structures in Oligopoly," Working papers 2016rwp-99, Yonsei University, Yonsei Economics Research Institute.
    4. Seaton, Jonathan S. & Waterson, Michael, 2013. "Identifying and characterising price leadership in British supermarkets," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 392-403.
    5. repec:eee:jeborg:v:144:y:2017:i:c:p:188-203 is not listed on IDEAS
    6. repec:bla:jageco:v:68:y:2017:i:3:p:881-900 is not listed on IDEAS

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wrk:warwec:975. 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: (Margaret Nash). General contact details of provider: http://edirc.repec.org/data/dewaruk.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.