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Price Adjustment at Multiproduct Retailers

Posted: 27 Feb 2005  

Daniel Levy

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

Shantanu Dutta

University of Southern California - Marshall School of Business

Mark E. Bergen

University of Minnesota - Carlson School of Management

Robert Venable

Robert W. Baird & Co. Incorporated

Abstract

We empirically study the price adjustment process at multiproduct retail stores. We use a unique store level data set for five large supermarket and one drugstore chains in the USA, to document the exact process required to change prices. Our data set allows us to study this process in great detail, describing the exact procedure, stages, and steps undertaken during the price change process. We also discuss various aspects of the microeconomic environment in which the price adjustment decisions are made, factors affecting the price adjustment decisions, and firm-level implications of price adjustment decisions. Specifically, we examine the effects of the complexity of the price change process on the stores' pricing strategy. We also study how the steps involved in the price change process, combined with the laws governing the retail price setting and adjustment, along with the competitive market structure of the retail grocery industry, influence the frequency of price changes. We also examine how the mistakes that occur in the price change process influence the actions taken by these multiproduct retailers. In particular, we study how these mistakes can make the stores vulnerable to civil law suits and penalties, and also damage their reputation. We also show how the mistakes can lead to stockouts or unwanted inventory accumulations. Finally, we discuss how retail stores try to minimize these negative effects of the price change mistakes.

Keywords: Price Adjustment Process, Multiproduct Retailer, Cost of Price Adjustment, Menu Cost

JEL Classification: E12, E31, L16

Suggested Citation

Levy, Daniel and Dutta, Shantanu and Bergen, Mark E. and Venable, Robert, Price Adjustment at Multiproduct Retailers. Managerial and Decision Economics, Vol. 19, No. 2, pp. 81-120, March 1998. Available at SSRN: https://ssrn.com/abstract=671802

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/

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)

Robert Venable

Robert W. Baird & Co. Incorporated ( email )

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