Prices and Promotions in U.S. Retail Markets

83 Pages Posted: 19 May 2017 Last revised: 18 May 2021

See all articles by Günter J. Hitsch

Günter J. Hitsch

University of Chicago - Booth School of Business

Ali Hortacsu

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Xiliang Lin

University of Chicago - Booth School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: August 18, 2019

Abstract

Abstract We provide generalizable results on the price and promotion tactics employed in the U.S. retail grocery industry. First, we document a large degree of price dispersion for UPCs and brands across stores, both nationally and at the local market level. Base price differences across stores and price promotions contribute to the overall price variance, and we show how to decompose the price variance into base price and promotion components. Second, we document that a large percentage of the variation in prices and promotion tactics across stores can be explained by retail chain and especially market/chain factors, whereas market factors explain only smaller percentage of the variation. Third, we show that the chain-level price and promotions similarity can be explained by similarity in demand. In particular, a large percentage of the variance in price elasticities and promotion effects can be explained by retail chain and especially market/retail chain factors. Further, price elasticities and promotion effects across stores of the same chain are hard to distinguish from the chain-market-level mean, and cross-price elasticities are typically imprecisely estimated. These findings suggest that retail managers may plausibly consider price discrimination across stores to be infeasible.

Keywords: pricing, promotions, retailing

Suggested Citation

Hitsch, Guenter J. and Hortacsu, Ali and Lin, Xiliang, Prices and Promotions in U.S. Retail Markets (August 18, 2019). Chicago Booth Research Paper No. 17-18, Available at SSRN: https://ssrn.com/abstract=2971168 or http://dx.doi.org/10.2139/ssrn.2971168

Guenter J. Hitsch (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Ali Hortacsu

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-5841 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Xiliang Lin

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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