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Abstract

Analyses of price rigidity mainly neglected food retailing industry. There are only few studies explicitly concerning this part of the food process chain. In Blinder’s et al. (1998) analysis of the U.S. economy the food retailing industry is underrepresented, whereas for Germany this industry is not even considered by Stahl (2005) at all, who concentrates his survey on manufacturing industries. An aggravating factor is that most of the remaining studies cover only few determinants for price rigidity’s explanation. On the basis of an extensive scanner dataset the present analysis simultaneously elucidates price rigidity with different determinants in the category of hard and sliced cheese for the year 2000 and 2001. Here, psychological pricing points, the average absolute amount of a price change as a proxy for menu costs, and the short-run price elasticity of demand as well as management decisions at the level of store types and firms are considered to be the main driving factors of price rigidity. It is novel in this study that price changes are divided into price actions (sales) and market driven price changes (price jumps). For estimation Zellner’s (1962) method of the Seemingly-Unrelated-Regression (SUR) is applied. This procedure is particularly suitable due to the direct and indirect impacts of the relevant determinants on the rigidity of prices, because determinant’s cross-relations are detected and modeled. The model results document that price rigidity differs clearly between sales and price jumps. Whereas in an overall view of all price changes price rigidity varies at the level of store types (firms) between 24.1 and 35.5 (11.0 and 10.7) weeks, considering only sales the duration of constant prices increases to periods ranging from 72.3 to 87.3 (38.8 to 89.2) weeks. Price jumps can be observed more frequently, so that the mean period of constant prices ranges between 32.0 and 44.0 (27.7 to 95.3) weeks at the level of store types (firms). The direct effect of an additional price action (price jump) on price rigidity is -1.5 (- 9.0) weeks for store types and -1.7 (- 10.0) weeks for firms. The influence of psychological prices on the price rigidity can be documented likewise. An increase of the share of psychological prices of sales by one percentage point implies, e.g. at the level of firms, that the duration of constant prices is raised by 1.3 weeks.

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