Retail pricing format and rigidity of regular prices

Abstract

We study the rigidity of regular and sale prices, and how it is affected by pricing formats (i.e. 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 contain 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 USA and Canada.