Multi-product pricing: Theory and evidence from large retailers in Israel

Arbeitspapier

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 multiproduct 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 firm sells a continuum of products and faces economies of scope in price adjustment. 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; however, only high degrees of synchronization can materially strengthen monetary non-neutrality. Hence, the synchronization of price changes observed in the data is consistent with considerable aggregate price flexibility.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Staff Working Paper ; No. 2020-12

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Firm Behavior: Empirical Analysis ; Price Level; Inflation; Deflation ; Monetary Policy ; Production, Pricing, and Market Structure; Size Distribution of Firms
• Subject: Inflation and prices ; Market structure and pricing ; Monetary policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bonomo, Marco Antonio ; Carlos Viana de Carvalho ; Kryvtsov, Oleksiy ; Ribon, Sigal ; Rigato, Rodolfo
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2020

Further information

• DOI: doi:10.34989/swp-2020-12
• Handle: http://hdl.handle.net/10419/241178
• Last update: 10.03.2025, 11:44 AM CET