Empirical Investigation on the Determinents of Retail Prices

Abstract

This study utilizes a rich data set from multiple retail chains to investigate

the determinants of retail prices identified from marketing literature:

wholesale price, retail competition, time elapsed since last promotion. The

empirical results indicate that although all three factors are statistically

significant in explaining the observed retail prices, they differ in the extent

to which they explain retail price variation. The competing retail prices

appear to explain more of variations in retail prices than other factors do.

It is also found that a substantial variation in the pass-through of a brand

exists across retailers. I also find positive cross-retail price responses, i.e.,

price reductions in competing retailers tend to lower the prices in a retailer.

Regarding the impact of time since last promotion, the result supports the

concavity of the effect of the variable. In terms of the direction, the overall

effect of TLP is positive initially and then decays.