Best prices
By: Judith A. Chevalier, Anil K Kashyap
Contributors: Kashyap, Anil K.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16680; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16680.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We explore the role of strategic price-discrimination by retailers for price determination and inflation dynamics.  We model two types of customers, "loyals" who buy only one brand and do not strategically time purchases, and "shoppers" who seek out low-priced products both across brands and across time.  Shoppers always pay the lowest price available, the "best price".  Retailers in this setting optimally choose long periods of constant regular prices punctuated by frequent temporary sales.  Supermarket scanner data confirm the model's predictions: the average price paid is closely approximated by a weighted average of the fixed weight average list price and the "best price".  In contrast to standard menu cost models, our model implies that sales are an essential part of the price plan and the number and frequency of sales may be an important mechanism for adjustment to shocks.  We conclude that our "best price" construct provides a tractable input for constructing price series"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 4/19/2011.

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