Retail Pricing Format and Rigidity of Regular Prices

TL;DR

This paper investigates how different retail pricing formats influence the rigidity of regular prices, revealing that store strategies significantly affect price behavior and the interpretation of discounts.

Contribution

It provides empirical evidence on how store-specific pricing formats impact regular price rigidity and the meaning of discounts across different retail formats.

Findings

Regular price rigidity varies by store format.

Pricing strategies influence the interpretation of sale prices.

Store format distribution affects price rigidity analysis.

Abstract

We study the price rigidity of regular and sale prices, and how it is affected by pricing formats (pricing strategies). We use data from three large Canadian stores with different pricing formats (Every-Day-Low-Price, Hi-Lo, and Hybrid) that are located within a 1 km radius of each other. Our data contains both the actual transaction prices and actual regular prices as displayed on the store shelves. We combine these data with two generated regular price series (filtered prices and reference prices) and study their rigidity. Regular price rigidity varies with store formats because different format stores treat sale prices differently, and consequently define regular prices differently. Correspondingly, the meanings of price cuts and sale prices vary across store formats. To interpret the findings, we consider the store pricing format distribution across the US.