89 Pages Posted: 21 Jul 2020
Date Written: June 2020
This paper studies pricing in the fashion retail industry. Online data was collected for approximately 350,000 distinct products from over 65 retailers in the U.S. and the U.K. We present evidence that a fair fraction of retailers implement an extreme form of price stickiness that we describe as quantum prices: a large number of different products are priced using just a few sparse prices, with price changes occurring rarely and in large magnitudes. Normalized price clustering measures indicate substantial price concentration within- and across- categories, not explained by popular prices, ranges of prices, assortment size, or digit endings. This pricing strategy is consistent with a behavioral model where fewer prices makes price advertising more effective, especially when the same prices are used across product lines and new products. Finally, quantum prices imply lumpy price adjustments either through product mix or introductions, it hinders the computation of inflation at the macro level, and it provides a friction to deviate from the law of one price.
Keywords: quantum prices; price stickiness; price cliffs; advertising; fashion retail; discrete prices
JEL Classification: D22, M3, D2, D83, E31, L81
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