Price Rigidity in the German Grocery-Retailing Sector: Scanner-Data Evidence on Magnitude and Causes

Abstract

The theoretical and empirical macroeconomic literature suggests that price rigidity in industrialized countries is substantial and its causes are manifold. This article provides empirical evidence on the importance of price rigidity in the grocery-retailing sector and on the role of some major determinants of food price rigidity. The analysis is based on a comprehensive weekly dataset of 20 branded foods in German food stores. The statistical analysis shows that food price rigidity is strong in spite of the widespread use of retail sales. Moreover, the importance of psychological pricing in grocery retailing is overwhelming. Econometric results indicate that food prices get more sticky as the number of price actions declines and as psychological pricing becomes more concentrated on a few important price barriers. Firms’ pricing strategies are crucial for food price rigidity, too.

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