Prices and promotions in U.S. retail markets

Abstract

We provide generalizable results on the price and promotion tactics employed in the U.S. retail grocery industry. First, we document a large degree of price dispersion for UPCs and brands across stores, both nationally and at the local market level. Base price differences across stores and price promotions contribute to the overall price variance, and we show how to decompose the price variance into base price and promotion components. Second, we document that a large percentage of the variation in prices and promotion tactics across stores can be explained by retail chain and especially market/chain factors, whereas market factors explain only smaller percentage of the variation. Third, we show that the chain-level price and promotions similarity can be explained by similarity in demand. In particular, a large percentage of the variance in price elasticities and promotion effects can be explained by retail chain and especially market/retail chain factors. Further, price elasticities and promotion effects across stores of the same chain are hard to distinguish from the chain-market-level mean, and cross-price elasticities are typically imprecisely estimated. These findings suggest that retail managers may plausibly consider price discrimination across stores to be infeasible.