Price Flexibility in Channels of Distribution: Evidence from Scanner Data

Posted: 21 Mar 2003  

Shantanu Dutta

University of Southern California - Marshall School of Business

Mark E. Bergen

University of Minnesota - Carlson School of Management

Daniel Levy

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

Abstract

In this study, we empirically examine the extent of price rigidity using a unique store-level time series data set - consisting of (i) actual retail transaction prices, (ii) actual wholesale transaction prices which represent both the retailers' costs and the prices received by manufacturers, and (iii) a measure of manufacturers' costs - for twelve goods in two widely used consumer product categories. We simultaneously examine the extent of price rigidity for each of the twelve products at both, final goods and intermediate goods levels. We study two notions of price rigidity employed in the existing literature: (i) the frequency of price changes, and (ii) the response of prices to exogenous cost changes. We find that retail prices exhibit remarkable flexibility in terms of both notions of price rigidity. i.e., they change frequently and they seem to respond quickly and fully to cost changes. Furthermore, we find that retail prices respond not just to their direct costs, but also to the upstream manufacturers' costs, which further reinforces the extent of the retail price flexibility. At the intermediate goods level of the market, in contrast, we find relatively more evidence of rigidity in the response of manufacturers prices to cost changes. This despite the fact that wholesale prices change frequently and therefore exhibit flexibility according to the first notion of price rigidity.

Keywords: Price Flexibility, Price Rigidity, Channels of Distribution, Scanner Data, Exogeneous Cost Changes, Frequency of Price Changes, Retail Price Rigidity, Wholesale Price Flexibility, Final Goods Prices, Intermediate Goods Prices

JEL Classification: E12, E31, L16

Suggested Citation

Dutta, Shantanu and Bergen, Mark E. and Levy, Daniel, Price Flexibility in Channels of Distribution: Evidence from Scanner Data. Journal of Economic Dynamics and Control, Vol. 26, No. 11, pp.1845-1900, September 2002. Available at SSRN: https://ssrn.com/abstract=372862

Shantanu Dutta

University of Southern California - Marshall School of Business ( email )

Hoffman Hall 701
Los Angeles, CA 90089-1427
United States
213-740-5038 (Phone)
213-740-7828 (Fax)

Mark E. Bergen

University of Minnesota - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-624-1821 (Phone)

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 )

Via Patara, 3
Rimini (RN), RN 47900
Italy

HOME PAGE: http://www.rcfea.org/

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