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

Pricing in inflationary times- the penny drops

  • 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)

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.

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://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2011/twerp_975.pdf
Download Restriction: no

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 975.

as
in new window

Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:wrk:warwec:975
Contact details of provider: Postal:
CV4 7AL COVENTRY

Phone: +44 (0) 2476 523202
Fax: +44 (0) 2476 523032
Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
  2. Ratula Chakraborty & Paul W. Dobson & Jonathan S. Seaton & Michael Waterson, 2014. "Market Consolidation and Pricing Developments in Grocery Retailing: A Case Study," World Scientific Book Chapters, in: THE ANALYSIS OF COMPETITION POLICY AND SECTORAL REGULATION, chapter 1, pages 3-29 World Scientific Publishing Co. Pte. Ltd..
  3. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 107-120.
  4. Luis J. Alvarez, 2007. "What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?," Kiel Working Papers 1330, Kiel Institute for the World Economy.
  5. 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.
  6. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
  7. Martin Berka & Michael B. Devereux & Thomas Rudolph, 2011. "Price setting in a leading Swiss online supermarket," Globalization and Monetary Policy Institute Working Paper 83, Federal Reserve Bank of Dallas.
  8. Emi Nakamura, 2008. "Pass-Through in Retail and Wholesale," American Economic Review, American Economic Association, vol. 98(2), pages 430-37, May.
  9. 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.
  10. Emi Nakamura & Jón Steinsson, 2013. "Price Rigidity: Microeconomic Evidence and Macroeconomic Implications," NBER Working Papers 18705, National Bureau of Economic Research, Inc.
  11. Maćkowiak, Bartosz & Wiederholt, Mirko, 2009. "Optimal sticky prices under rational inattention," Working Paper Series 1009, European Central Bank.
  12. 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.
  13. David Laibson & Xavier Gabaix, 2004. "Competition and Consumer Confusion," Econometric Society 2004 North American Summer Meetings 663, Econometric Society.
  14. 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.
  15. S. P. Anderson & A. de Palma & B. Kreider, 2000. "Tax Incidence in Differentiated Product Oligopoly," THEMA Working Papers 2000-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  16. 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.
  17. 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 137-55, April.
  18. 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.
  19. 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).
  20. Smith, Howard & Thanassoulis, John, 2012. "Upstream uncertainty and countervailing power," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 483-495.
  21. Glenn Ellison & Alexander Wolitzky, 2012. "A search cost model of obfuscation," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 417-441, 09.
  22. Glenn Ellison & Sara Fisher Ellison, 2004. "Search, Obfuscation, and Price Elasticities on the Internet," NBER Working Papers 10570, National Bureau of Economic Research, Inc.
  23. Severin Borenstein & A. Colin Cameron, 1992. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," NBER Working Papers 4138, National Bureau of Economic Research, Inc.
  24. 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.
  25. Ellickson, Paul & Misra, Sanjog, 2006. "Supermarket Pricing Strategies," Working Papers 06-02, Duke University, Department of Economics.
  26. 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.
  27. David Berger & Joseph Vavra, 2014. "Consumption Dynamics During Recessions," NBER Working Papers 20175, National Bureau of Economic Research, Inc.
  28. 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.
  29. repec:bre:polbrf:411 is not listed on IDEAS
  30. 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.
  31. Jochen Meyer & Stephan Cramon-Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 581-611.
  32. 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.
  33. Judith A. Chevalier & Anil K Kashyap, 2011. "Best Prices," NBER Working Papers 16680, National Bureau of Economic Research, Inc.
  34. Michele Piccione & Ran Spiegler, 2010. "Price Competition under Limited Comparability," Levine's Working Paper Archive 661465000000001143, David K. Levine.
  35. Howard Smith, 2004. "Supermarket Choice and Supermarket Competition in Market Equilibrium," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 235-263.
  36. Martin Eichenbaum & Nir Jaimovich & Sergio Rebelo, 2011. "Reference Prices, Costs, and Nominal Rigidities," American Economic Review, American Economic Association, vol. 101(1), pages 234-62, February.
  37. Ellis, Colin, 2009. "Do supermarket prices change from week to week?," Bank of England working papers 378, Bank of England.
  38. Giliola Frey & Matteo Manera, 2007. "Econometric Models Of Asymmetric Price Transmission," Journal of Economic Surveys, Wiley Blackwell, vol. 21(2), pages 349-415, 04.
  39. 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.
  40. Xavier Gabaix & David Laibson & Deyuan Li & Hongyi Li & Sidney Resnick & Casper G. de Vries, 2013. "The Impact of Competition on Prices with Numerous Firms," Working Papers 13-07, Chapman University, Economic Science Institute.
  41. 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, 06.
  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.
  43. 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.
  44. Virgiliu Midrigan, 2011. "Menu Costs, Multiproduct Firms, and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(4), pages 1139-1180, 07.
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: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: (Robyn Till)

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.