Quantum Prices

89 Pages Posted: 21 Jul 2020

See all articles by Diego Aparicio

Diego Aparicio

University of Navarra, IESE Business School

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: June 2020

Abstract

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

Suggested Citation

Aparicio, Diego and Rigobon, Roberto, Quantum Prices (June 2020). Available at SSRN: https://ssrn.com/abstract=3644988 or http://dx.doi.org/10.2139/ssrn.3644988

Diego Aparicio (Contact Author)

University of Navarra, IESE Business School ( email )

Carrer d'Arnus i de Gari, 3-7
Barcelona
Spain

Roberto Rigobon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-447
Cambridge, MA 02142
United States
617-258-8374 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
17
Abstract Views
131
PlumX Metrics