Pricing Better

41 Pages Posted: 20 Aug 2019 Last revised: 18 Oct 2019

See all articles by Sourav Ray

Sourav Ray

McMaster University - DeGroote School of Business

Li Wang

CHEPA, McMaster University

Daniel Levy

Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis

Mark Bergen

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: August 17, 2019

Abstract

Electronic shelf label (ESL) is an emerging price display technology around the world. While these new technologies require non-trivial investments by the retailer, they also promise significant operational efficiencies in the form of savings in material, labor and managerial costs. The presumed benefits of ESL, for example, tend to be focused around lower price adjustment costs (PAC), also known as menu costs. However, ESL not only can save PAC but may also enable the retailer to price “better,” generating greater value for the transacting parties. Thus, ESL’s strategic impact for retailers occurs between claiming these presumed efficiencies and realizing the value generating potential. Using transactions data from a longitudinal field experiment, we assess such impact of ESL by studying how it shapes retail pricing practices and outcomes. Our general finding is that ESL plays an enabling role to the retailer’s strategy – thereby enhancing the retailer’s sales and revenues. The price adjustment efficiencies of ESL allows retailers to do better waste management, price discovery, as well as leveraging value in information for consumers. However, ESL’s impact on prices is nuanced, based on the retail strategy (EDLP, HI-LO) being used. Papers quantifying emerging technologies’ impact on retail outcomes are sparse, even fewer investigating their role in pricing. To the best of our knowledge, ours is the first study to explore and quantify how ESL interacts with retail strategy to affect retail pricing practices and retail outcomes.

Keywords: Retailing, Pricing, EDLP, HI-LO, Dynamic Capability, Menu Costs, Price Adjustment, Price Elasticity, Price Discovery

JEL Classification: M31, E31, D22, D40, C93, L10, O33, L81

Suggested Citation

Ray, Sourav and Wang, Li and Levy, Daniel and Bergen, Mark, Pricing Better (August 17, 2019). Available at SSRN: https://ssrn.com/abstract=3438547 or http://dx.doi.org/10.2139/ssrn.3438547

Sourav Ray

McMaster University - DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
905-525-9140 x 22370 (Phone)
905-521-8995 (Fax)

Li Wang

CHEPA, McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Daniel Levy (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 5290002
Israel
+972 3 531-8345 (Phone)
+972 3 738-4034 (Fax)

HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )

1602 Fishburne Drive, Suite 306
Rich Building
Atlanta, GA 30322-0001
United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/Levydaniel.html

Rimini Center for Economic Analysis ( email )

Wilfrid Laurier University
75 University Ave W.
Waterloo, Ontario N2L3C5
Canada

HOME PAGE: http://rcea.org/

Mark Bergen

University of Minnesota - Twin Cities - Carlson School of Management ( email )

United States

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