Working Paper: NBER ID: w13965
Authors: Emi Nakamura
Abstract: This paper studies how prices comove across products, firms and locations to gauge the relative importance of retailer versus manufacturer-level shocks in determining prices. I make use of a large panel data set on prices for a cross-section of retailers in the U.S. I analyze prices at the barcode or "Universal Product Code'' (UPC) level for individual stores. I find that only 16% of the variation in prices is common across stores selling an identical product. 65% of the price variation is common to stores within a particular retail chain (but not across retail chains), while 17% is completely idiosyncratic to the store and product. Product categories with frequent temporary "sales'' exhibit a disproportionate amount of completely idiosyncratic price variation. My results suggest that most of the observed price variation arises from retail-level rather than manufacturer-level demand and supply shocks. However, the behavior of prices is difficult to relate to observed variation in costs and demand at the retail level. This suggests that retail prices may vary largely as a consequence of dynamic pricing strategies on the part of retailers or manufacturers, rather than static demand and supply shocks.
Keywords: Retail Pricing; Wholesale Pricing; Price Variation; Dynamic Pricing
JEL Codes: E30; F40; L16; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| retail-level shocks (L81) | price variations (P22) |
| manufacturer-level shocks (L68) | price variations (P22) |
| price variations (common across stores) (D46) | price variations (common within retail chains) (L11) |
| price variations (common within retail chains) (L11) | price variations (idiosyncratic) (E30) |
| temporary sales (M31) | idiosyncratic price variation (P22) |