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Price flexibility in British supermarkets

Author

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  • Seaton, Jonathan S

    (Loughborough University)

  • Waterson, Michael

    (University of Warwick)

Abstract

This paper delivers a significantly different empirical perspective on micro pricing behaviour and its impact on macroeconomic processes than previous studies. We examine a seven year period of pricing behaviour by the major British supermarkets encompassing the recession year 2008 and the partial recovery of 2009. 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

Suggested Citation

  • Seaton, Jonathan S & Waterson, Michael, 2012. "Price flexibility in British supermarkets," The Warwick Economics Research Paper Series (TWERPS) 993, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:993
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2012/twerp_993.pdf
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    References listed on IDEAS

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    1. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-391, June.
    2. 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.
    3. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U. S. Supermarket Chains," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 791-824.
    4. Alberto Cavallo, 2015. "Scraped Data and Sticky Prices," NBER Working Papers 21490, National Bureau of Economic Research, Inc.
    5. Philip Bunn & Colin Ellis, 2012. "Examining The Behaviour Of Individual UK Consumer Prices," Economic Journal, Royal Economic Society, vol. 122(558), pages 35-55, February.
    6. 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.
    7. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284 Elsevier.
    8. 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.
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    Cited by:

    1. 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.

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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