Retail Pricing Behavior for Perishable Produce Products in the US with Implications for Farmer Welfare

The typical model of retail pricing for produce products assumes retailers set price equal to the farm price plus a certain markup. However, observations from scanner data indicate a large degree of price dispersion in the grocery retailing market. In addition to markup pricing behavior, we document three alternative leading pricing patterns: fixed (constant) pricing, periodic sale, and high-low pricing. Retail price variations under these alternative pricing regimes in general have little correlation with the farm price. How do retailers’ alternative pricing behaviors affect farmers’ welfare? Using markup pricing as the baseline case, we parameterize the model to reflect a prototypical fresh produce market and carry out a series of simulations under different pricing regimes. Our study shows that if harvest cost is sufficiently low, retail prices adjusting only partially, or not at all, to supply shocks tends to diminish farm income and exacerbate farm price volatility relative to the baseline case. However, we also find that if harvest cost is sufficiently large and the harvest-cost constraint places a lower bound on the farm price, increased farm price volatility induced by retailers’ alternative pricing strategies may result in higher farm income, compared to markup pricing. Our study is the first to evaluate the welfare implications for producers of the diversified pricing strategies that retailers utilize in practice and the resulting attenuation of the relationship between prices at retail and at the farm gate.Agribusiness, Demand and Price Analysis,

Menu Costs, Posted Prices, and Multiproduct Retailers

We use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from 4 large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules, are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices, and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.Menu Cost, Posted Prices, Multiproduct Retailer, Price Rigidity, Sticky Prices, Cost of Price Adjustment, Time Dependent Pricing

Stiff Competition: Vertical Relationships in Cremation Services

I examine the relationship between retail market competition and wholesale contracting patterns, by analyzing subcontracting behavior of funeral homes (retailers) and crematories (wholesalers) in the Minnesota funeral industry. Exploiting detailed data on wholesale and retail quantities, subcontracting patterns, consumer and establishment locations, and retail pricing, I estimate a model that predicts pricing, consumer funeral home choice, and vertical relationships between funeral homes and crematories. I find that funeral homes seeking wholesale cremation services are significantly less likely to subcontract with crematories belonging to firms that are direct retail market competitors. The estimated aversion to subcontracting with competitors is greater for funeral homes with fewer proximate crematories. This is consistent with foreclosure by integrated crematories. Counterfactual analysis indicates that funeral homes with few crematories nearby (that are owned by retail competitors) bear additional costs ranging from $161 to$203 per body on average, or seven to nine percent of the retail price. Half of this cost impact is transmitted to consumers, resulting in a four percent retail price increase in these markets on average.Vertical integration, competitive market, retail market, wholsesale market

Wholesale Price Discrimination between High Street Retailers and Online Retailers

We analyze wholesale pricing and retail pricing when a monopolistic manufacturer sells its product to a high street retailer and an online electronic retailer, which have different selling qualities and marginal selling costs. We observe that (1) the wholesale price for an online electronic retailer is higher than that for a high street retailer if an online electronic retailer's selling cost advantage is greater than its selling quality disadvantage for all consumers buying products, and (2) the retail price of the e-retailer is necessarily lower than that of the c-retailer independent of conditions.

Complementarities, Below-Cost Pricing, and Welfare Losses

We analyze below-cost pricing in retail markets and examine its impact on social welfare as well as on suppliers' incentives to invest in quality. Considering negotiations about a linear wholesale price between the retailer and her suppliers, we find that below-cost pricing aggravates the double marginalization problem and causes welfare losses compared to a regime where below-cost pricing is banned. Furthermore, suppliers have stronger incentives to invest in high quality products if a ban of below-cost pricing is enforced.Complementarities, Retailing, Below-Cost Pricing

PRICE ASYMMETRY IN THE UNITED STATES FRESH TOMATO MARKET

This paper analyzes pricing relationships between the producer, wholesale and retail levels of the U.S. fresh tomato industry. The results indicate that price transmission is unidirectional from producer to retail. There was no asymmetric response for the producer-retail price relationship. Asymmetric price response was exhibited between wholesalers and both producers and retailers. Retail prices respond more to rising wholesale prices than to falling prices. Wholesales prices, however, respond more to declining producer price than to rising producer price.Demand and Price Analysis,

The Long Run, Market Power and Retail Pricing

The paper uses the Johansen cointegration approach to analyse long-run pricing strategies of pork and chicken retailers in Austria. Long-run retail pricing strategy is found to be dependent on market share and price elasticity of demand for product. A combination of mark-up pricing strategy for pork and a competitive pricing strategy for chicken is considered by retailers to yield maximum profit. Long-run price adjustment reveals linkages to pricing strategy. The versatility of the Johansen cointegration technique as a tool capable of analysing both competitive and imperfect market situations is also revealed. The paper recommends meat policy to be product specific rather than holistic.Market power, Markup pricing, Cointegration, Long run

Factory Gate Pricing: An Analysis of the Dutch Retail Distribution

Factory Gate Pricing (FGP) is a relatively new phenomenon in retail distribution. Under FGP, products are no longer delivered at the retailer distribution center, but collected by the retailer at the factory gates of the suppliers. Owing to both the asymmetry in the distribution networks (the supplier sites greatly outnumber the retailer distribution centers) and the better inventory and transport coordination mechanisms, this is likely to result in high savings. A mathematical model was used to analyze the benefits of FGP for a case study in the Dutch retail sector. Extensive numerical results are presented to show the effect of the orchestration shift from supplier to retailer, the improved coordination mechanisms, and sector-wide cooperation.supply chain management;factory gate pricing;retail distribution