Retailer heterogeneity and price dynamics: scanner data evidence from UK food retailing

Working paper from Transparency of Food Pricing (TRANSFOP) project. NOTICE: this is the author’s version of a work that was accepted for publication in Economics Letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economics Letters, Volume 124, Issue 3, September 2014, Pages 434–438 at DOI 10.1016/j.econlet.2014.06.032This paper contributes to recent research on price dynamics using micro-price data sets. We emphasize a previously neglected aspect, the role of retailer heterogeneity. Our key findings are: (i) the frequency of price adjustment and the implied duration of prices varies considerably across retailers; (ii) price promotions (sales) also vary across retailers with some retailers seldom using sales, while for others sales are a common feature of pricing; (iii) the duration of reference prices is-at most-26 weeks but the duration of reference prices is around 16 weeks for some retailers; (iv) branded products have shorter durations than private label products; (v) decomposition analysis suggests price adjustment is evenly split between sales and reference prices but, for some retailers, reference prices are the main source of price changes; (vi) there is low correlation between the frequency of price and costs changes across both products and retailers. Taken together, while confirming the significance of price stickiness after accounting for sales, price dynamics vary considerably across retailers. In turn, retailer heterogeneity has important implications for interpreting aggregate price dynamics in both theoretical and empirical research.EU Seventh Framework Programme Grant Agreement No. KBBE-265601-4-TRANSFO