Price Leadership in UK Food Retailing: Time Series Representation and Evidence

Abstract

This paper analyses the price of a common basket of products sold in each of the UK’s four largest retail chains to assess propositions regarding price leadership. Data used in this investigation represent weighted average prices of a large group of branded and non-branded products purchased nationally at weekly intervals over a three and half year period and cover purchases in 37 product categories. The data are analysed using vector autoregressive methods, a convenient framework for a statistical investigation of this sort, owing to the time series properties that the price data exhibit. The paper introduces the concepts of strategic and tactical price leadership. Since these correspond to parameter restrictions in the vector autoregression, the statistical tests have a economically meaningful interpretation. While the empirical findings are preliminary, they indicate that Tesco, the largest of the retail chains, acts as price leader in both the strategic and tactical senses.