Arbeitspapier

Holiday price regidity and cost of price adjustment

The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers' questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. For example, the econometric model we estimate suggests that the probability of a price change is lower during holiday periods, even after accounting for cost changes. Moreover, we find that the probability of a price change increases with the size of the cost change, during both, the holiday as well as non-holiday periods. We argue that these findings are best explained by higher price adjustment costs (menu cost) the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and nonholiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity, and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity.

Sprache
Englisch

Erschienen in
Series: Working Paper ; No. 2009-03

Klassifikation
Wirtschaft
General Aggregative Models: Keynes; Keynesian; Post-Keynesian
Price Level; Inflation; Deflation
Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
Production, Pricing, and Market Structure; Size Distribution of Firms
Marketing
Thema
Price Rigidity
Cost of Price Adjustment
Menu Cost
Holiday Period
Asymmetric Price Adjustment
Monetary Policy
Preisrigidität
Anpassungskosten
SB-Lebensmittelgeschäft
Nahrungsmittel
Zeit
USA

Ereignis
Geistige Schöpfung
(wer)
Levy, Daniel
Müller, Georg
Chen, Haipeng (Allan)
Bergen, Mark
Dutta, Shantanu
Ereignis
Veröffentlichung
(wer)
Bar-Ilan University, Department of Economics
(wo)
Ramat-Gan
(wann)
2008

Handle
Letzte Aktualisierung
10.03.2025, 11:43 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Levy, Daniel
  • Müller, Georg
  • Chen, Haipeng (Allan)
  • Bergen, Mark
  • Dutta, Shantanu
  • Bar-Ilan University, Department of Economics

Entstanden

  • 2008

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