Retail pricing format and rigidity of regular prices

Abstract

We study different notions of sale and regular prices, and their variability with store pricing-formats. We use data from three large stores with different pricing-formats (EDLP/Hi-Lo/Hybrid) that are located within 1-km radius. Importantly, the data contain both the actual transaction prices and the actual regular prices as displayed on the store shelves. We combine these data with two “generated” regular price series and study their rigidity. Regular-price rigidity varies with store-formats because different format stores define regular-prices differently. Correspondingly, the meaning of price-cuts varies across store-formats. To interpret the findings, we consider the store pricing format distribution across the US. Valuation Insight: The extent to which firms change product prices in response to demand shocks is shown to depend crucially on which pricing format the firm uses and which type of price is being considered. To infer a firm's competitive situation and prospects for value generation from its pricing policies, it is essential to account for the type of price and the pricing format the firm employs.