Search, Costly Price Adjustment and the Frequency of Price Changes - Theory and Evidence

We establish a new empirical finding that the intensity of search for the best price affects the frequency of nominal price changes. This relationship holds in very different economies and for various proxies for search intensity. We derive this relationship from a model of monopolistically competitive firms that face menu costs of changing nominal prices and heterogeneous consumers who search for the best price. We discuss alternative explanations and argue that they do not explain the observed correlations. Our results establish that pricing policies differ endogenously in the cross-section. This may be an important feature missing in many macroeconomic models based on nominal rigidities with exogenous frequency of price changes.Nominal rigidity; search; price adjustment

FRESH VEGETABLE PRICE LINKAGE BETWEEN GROWER/SHIPPERS, WHOLESALERS AND RETAILERS

This study focused on the transmission of price adjustments between grower/shippers and wholesalers and between wholesale handlers and retailers of nine fresh vegetables (only the results associated with bell peppers are reported in this paper). Results among the nine vegetable products were not consistent with respect to the magnitude of adjustments or the time periods involved in the adjustments. In response to wholesale price changes, upward price adjustments at the retail level occur more quickly than do downward price adjustments. Price transmission relationships also varied among the vegetable products between the wholesaler and grower. Overall, the results indicate that factors in addition to changes in upstream prices are impacting retailers' and wholesalers' pricing decisions.Demand and Price Analysis,

FOOD RETAIL SALES (PRICING): THEORY AND EMPIRICAL EVIDENCE FOR GERMAN GROCERY STORES

Retail pricing indicates many phenomena, such as sales or rigidities. A number of models have been proposed in particular to explain the occurrence of sales. Focussing on the market for fresh foods the model by Varian and the loss leader argument seem to be intuitively best fitting to the conditions in the fresh food market. From these models we derive several hypotheses that are tested for a unique data set of the German fresh food retail market The data set consists of weekly prices for ten food items in 131 grocery shops over the period from 1995 to 2000. The results support to some extent the Varian model and also indicate some dynamic loss leader pricing. However, rejections of some hypothesis provide some hints for successive models adjustments. Promising extensions of the theory might be based on the consideration of menu and switching costs.Marketing,

Lumpy Price Adjustments: A Microeconometric Analysis

This paper presents a simple model of state-dependent pricing that allows identification of the relative importance of the degree of price rigidity that is inherent to the price setting mechanism (intrinsic) and that which is due to the price’s driving variables (extrinsic). Using two data sets consisting of a large fraction of the price quotes used to compute the Belgian and French CPI, we are able to assess the role of intrinsic and extrinsic price stickiness in explaining the occurrence and magnitude of price changes at the outlet level. We find that infrequent price changes are not necessarily associated with large adjustment costs. Indeed, extrinsic rigidity appears to be significant in many cases. We also find that asymmetry in the price adjustment could be due to trends in marginal costs and/or desired mark-ups rather than asymmetric cost of adjustment bands

Perishable Food Waste Reduction Through Technological Implementation at the Retail Level of the Food Supply Chain

Food waste has become a disaster of global proportion that the world can no longer turn a blind eye to. This paper aims to reduce food waste at the retail level of the food supply chain by recommending and quantifying the effects of current technology that can be implemented in traditional supermarkets. This research recommends that retailers implement electronic shelf labels in stores and employ dynamic pricing of perishable products, leading to reduction of food waste. No prior research had considered the primary goal of reducing food waste while preserving retailer profit through technological implementation. This paper quantifies the effects of implementing this technology and provides economic justification of the required investment through the calculation of profitability metrics and discussion of environmental regulations retailers will soon have to abide by. Our results indicate, even in the most conservative of scenarios, that the payback period for full implementation of electronic shelf labels will be less than or slightly over one year and the return on investment is high in all situations discussed. Sensitivity analyses of labor costs, revenue, and profitability ratios are illustrated to provide a full breadth of these results

Revenue Management and Demand Fulfillment: Matching Applications, Models, and Software

Recent years have seen great successes of revenue management, notably in the airline, hotel, and car rental business. Currently, an increasing number of industries, including manufacturers and retailers, are exploring ways to adopt similar concepts. Software companies are taking an active role in promoting the broadening range of applications. Also technological advances, including smart shelves and radio frequency identification (RFID), are removing many of the barriers to extended revenue management. The rapid developments in Supply Chain Planning and Revenue Management software solutions, scientific models, and industry applications have created a complex picture, which appears not yet to be well understood. It is not evident which scientific models fit which industry applications and which aspects are still missing. The relation between available software solutions and applications as well as scientific models appears equally unclear. The goal of this paper is to help overcome this confusion. To this end, we structure and review three dimensions, namely applications, models, and software. Subsequently, we relate these dimensions to each other and highlight commonalities and discrepancies. This comparison also provides a basis for identifying future research needs.Manufacturing;Revenue Management;Software;Advanced Planning Systems;Demand Fulfillment

Discounting Works in the Hotel Industry: A Structural Approach to Understanding Why

This case study provides an empirical assessment of the relationship between discounting hotel room rates and hotel financial performance. The dynamics of the lodging industry are accounted for through the adoption of an error correction model. Recent research suggests that the use of discounting room rates may not be an effective pricing strategy as it results in increased occupancy rates at decreased average daily rates, thereby reducing a common financial performance indicator – revenue per available room (revPAR). The recommendation made to hotel managers, then, is to avoid discounting and instead adopt an average rate. This study generates opposing findings and reveals that discounting may be a practical short-term pricing solution that may compensate for market disequilibria. The results suggest that using statistical residuals rather than room rate averages may more accurately forecast appropriate hotel room rates and balance supply and demand. Thus, the recommendation of adopting average room rates may provide incorrect implications for managers in the short run

Minimizing food waste in grocery store operations: literature review and research agenda

Research on grocery waste in food retailing has recently attracted particular interest. Investigations in this area are relevant to address the problems of wasted resources and ethical concerns, as well as economic aspects from the retailer’s perspective. Reasons for food waste in retail are already well-studied empirically, and based on this, proposals for reduction are discussed. However, comprehensive approaches for preventing food waste in store operations using analytics and modeling methods are scarce. No work has yet systematized related research in this domain. As a result, there is neither any up-to-date literature review nor any agenda for future research. We contribute with the first structured literature review of analytics and modeling methods dealing with food waste prevention in retail store operations. This work identifies cross-cutting store-related planning areas to mitigate food waste, namely (1) assortment and shelf space planning, (2) replenishment policies, and (3) dynamic pricing policies. We introduce a common classification scheme of literature with regard to the depth of food waste integration and the characteristics of these planning problems. This builds our foundation to review analytics and modeling approaches. Current literature considers food waste mainly as a side effect in costing and often ignores product age dependent demand by customers. Furthermore, approaches are not integrated across planning areas. Future lines of research point to the most promising open questions in this field

Price setting behaviour in Spain: stylised facts using consumer price micro data

This paper identifies the basic features of the price setting mechanism in the Spanish economy, using a large dataset that contains over 1.1 million price records and covers around 70% of the expenditure on the CPI basket. In particular, the paper identifies differences in the frequency and size of price adjustments across types of products and explores how these general features are affected by certain specific factors: seasonality, the level of inflation, changes in indirect taxation and the practice of using psychological and round prices. We find that prices do not change often but do so by a large amount, although there is a marked heterogeneity across products. Moreover, the high frequency of price reductions suggests that there is no strong downward rigidity. Our evidence also supports the use of time and state-dependent pricing strategies. JEL Classification: E31, D40, C25consumer prices, frequency of price changes, price setting

The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains

We use store-level data to document the exact process of changing prices and to directly measure menu costs at five multi-store supermarket chains. We show that changing prices in these establishments is a complex process, requiring dozens of steps and a nontrivial amount of resources. The menu costs average $105,887/year per store, comprising 0.70$0.52/price change. These menu costs may be forming a barrier to price changes. Specifically, (1) a supermarket chain facing higher menu costs (due to item pricing laws which require a separate price tag on each item) changes prices 2 1/2 times less frequently than the other four chains; (2) within this chain, the prices of products exempt from the law are changed over three times more frequently than the products subject to the law.Menu Cost, Posted Prices, Multiproduct Retailer, Price Rigidity, Sticky Prices, Rigid Prices, Cost of Price Adjustment, New Keynesian Economics, Time Dependent Pricing