Multi-Product Pricing: Theory and Evidence From Large Retailers in Israel

45 Pages Posted: 29 May 2020 Last revised: 25 Aug 2020

See all articles by Marco Bonomo

Marco Bonomo

Insper Institute of Education and Research

Carlos Carvalho

Asset 1 Investment Company; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Oleksiy Kryvtsov

Bank of Canada

Sigal Ribon

Bank of Israel - Research Department

Rodolfo Rigato

Harvard University

Date Written: April 27, 2020

Abstract

Standard theories of price adjustment are based on the problem of a single-product firm, and therefore, they may not be well suited to analyze price dynamics in the economy with multi-product firms. To guide new theory, we study a unique dataset with comprehensive coverage of daily prices in large multi-product food retailers in Israel. We find that a typical retail store synchronizes its regular price changes around occasional “peak” days when, once or twice a month, it reprices around 10% of its products. To assess the implications of partial price synchronization for inflation dynamics, we develop a new price-setting model in which a multi-product firm faces economies of scope in price adjustment, and synchronization is endogenous. The model generates the partial synchronization pattern with peaks of re-pricing activity observed in the data. We show analytically and numerically that synchronization of price changes attenuates the average price response to a monetary shock, but only high degrees of synchronization can substantially strengthen monetary non-neutrality. A model calibrated to the degree of synchronization of price changes observed in the data generates considerable aggregate price flexibility.

Keywords: Inflation, Prices, Multi-Product Pricing, Menu Cost, Monetary Non-Neutrality

JEL Classification: D21, D22, E31, E52, L11

Suggested Citation

Bonomo, Marco and Carvalho, Carlos and Kryvtsov, Oleksiy and Ribon, Sigal and Dinis Rigato, Rodolfo, Multi-Product Pricing: Theory and Evidence From Large Retailers in Israel (April 27, 2020). Available at SSRN: https://ssrn.com/abstract=3590402 or http://dx.doi.org/10.2139/ssrn.3590402

Marco Bonomo

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

Carlos Carvalho

Asset 1 Investment Company ( email )

Avenida Juscelino Kubitschek, 1600/Conj 52
São Paulo, São Paulo
Brazil

HOME PAGE: http://www.asset1.com.br

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

Oleksiy Kryvtsov (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Sigal Ribon

Bank of Israel - Research Department ( email )

PO Box 780
Jerusalem 91007
Israel

Rodolfo Dinis Rigato

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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