Private label price rigidity during holiday periods

Abstract

Using weekly retail transaction scanner price data from a large US supermarket chain, significantly higher retail price rigidity is found for private label products than for nationally branded products during the Christmas and Thanksgiving holiday periods relative to the rest of the year. The finding cannot be explained by changes in holiday period promotional practices because it is found that private label promotions appear to diminish at least as much as national brands. The increased rigidity of private label products relative to national brands is only partially accounted for by increased rigidity of wholesale prices. After ruling out other potential explanations, it is suggested that the higher private label price rigidity might be due to the increased emphasis on social consumption during holiday periods, raising the customers’ value of nationally branded products relative to the private labels.

Acknowledgements

We thank the participants of the NBER-CRIW conference in Cambridge, MA, and the Price Rigidity Session participants at the American Economic Association Meetings for comments. We are particularly grateful to Walter Oi at the NBER-CRIW conference, and to John Carlson at the AEA meeting, for insightful comments and suggestions. We also thank Dennis Carlton, Haipeng (Allan) Chen, Bob Chirinko, Hashem Dezhbakhsh, Akshay Rao, Sourav Ray, as well as the Economics Seminar participants at Emory University and the Marketing Seminar participants at Harvard University and University of Minnesota, for useful comments and discussions. Finally, we thank the University of Chicago and Dominick's for providing access to their data set. All authors contributed equally: we rotate co-authorship. The usual disclaimer applies.

Notes

¹ See also Mankiw (1985), Carlton (1986), Cecchetti (1986), Caplin and Leahy (1991), Caplin (1993), Sheshinski and Weiss (1993), Basu (1995), Kashyap (1995), Blinder et al. (1998), Slade (1998), and Levy et al. (2002), and the references cited therein.

² Private labels are also known as ‘store brands’ and refer to the in-house brand, which is usually owned and sold by a particular retail supermarket chain. Nationally branded products are manufactured by big national producers and carried by most large supermarkets. Dominick's carries a large number of private label products in nearly all categories we study. See Barsky et al. (2003) for more details.

³ There is also a growing literature in marketing, documenting differences between national brands and private labels. See, for example, Hoch and Banerji (1993).

⁴ See, for example, Pashigian (1994), Warner and Barsky (1995), and Chevalier et al. (2003).

⁵ They, however, do not study variation in the rigidity across private label and national brand products.

⁶ For more details see Müller et al. (2002), Barsky et al. (2003), or Chevalier et al. (2003). The data are available at www.gsb.uchicago.edu/research/mkt/MarketingHomePage.html.

⁷ Dominick's has three price zones, and the six stores in our sample are in the mid-price zone. Prices for all stores within the chain are set centrally at corporate headquarters. During data collection, the chain was conducting pricing experiments, but the stores in our sample come from the ‘control’ group, which followed the same pricing strategy. We also analysed data for three other stores that faced a greater competition but the results we obtained were nearly identical to what we report here.

⁸ Due to product additions and deletions, not all products have a full 210-week sales history.

⁹ We also ran the analyses for other combinations of holiday weeks, including two weeks before Christmas and two weeks after Christmas, or focusing on each holiday individually. Our results were similar for all the alternative combinations we ran. In addition, we run a similar analysis by including other holiday periods such as Memorial Day, 4th of July, and Labor Day, but found that the holiday period price rigidity results primarily hold for the Thanksgiving and the Christmas holidays.

¹⁰ This finding, however, is not the focus of this paper, because it is reported and discussed in Müller et al. (2002). Their explanation for the greater holiday price rigidity is higher opportunity costs of price adjustment during holiday periods. In this paper, our focus is on the differences between national brand and private label products.

¹¹ Chevalier et al. (2003) also find that changes in wholesale prices at this chain are small in absolute as well as in relative terms.

¹² See, for example, Belk (1976), Cheal (1987), and Otnes et al. (1993).

¹³ The costs of price adjustment theory, which, as Muller et al. (2002) have argued, lead to the holiday price rigidity for both branded and private label products, is obviously an exception.