the pervasive role fo retail chains in price dispersion ... ·...

The Pervasive Role fo Retail Chains in PriceDispersion

Evidence from French Supermarkets

Nicoletta Berardi (Banque de France)Patrick Sevestre (Universite Aix-Marseille)

Congres AFSE17th June 2019

In a nutshellAssessing price dispersion

Between and Within Retail Chain Price DispersionConclusions

MotivationLiteratureWhat we doWhat we get

Motivation: Understanding price setting

Shedding light on how prices are set:

I price dispersion: do price setters choose different price levelsfor the same product?

I price dynamics: how often and by how much prices change?

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Deviations from optimal price level

I imply that economic policies (e.g. monetary policy, taxchanges) not efficiently transmitted

I entail theoretically and empirically both price rigidity anddispersion details

..in what follows, focus on price dispersion

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Literature on price dispersion

I relation between overall inflation and price dispersione.g., Alvarez,GonzalezRodaza,Nuemeyer&Beraja(2013);

Nakamura,Steinsson,Sun&Villar(2016)

I price dispersion in specific marketse.g., airline: Borestein&Rose(1994) and Gerardi&Shapiro(2009);

drugs: Sorensen(2000); textbooks: Hong&Shum(2006); RAM

modules: MoragaGonzalez&Wildenbeest(2008)

I price dispersion in retail sector• Asplund&Friberg(2001): Sweden, 5 product categories, 1000

supermarkets, 1993-1997• Kaplan&Menzio(2015): US, Kilts-Nielsen Consumer Panel

Data, 2004-2009• Dubois&Perrone(2015): France, Kantar TNS Household

Survey, 4 product categories, 1999-2001

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What we do

1. assess price dispersion in France

2. compare with other countriesand in particular the US

3. disentangle whether price dispersion isbetter characterized as:

• spatial: some shops persistently sell at lower prices• temporal: each store varies its prices over time with

temporary discounts to alter ranking

4. investigate role of retail chains and local factors in pricedispersion at national level

5. shed light on price dispersionbetween and within retail chains

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What we find in a nutshell

1. prices for identical grocery products are far from identicalacross stores

2. price dispersion in France appears lower than in Anglosaxoncountries

3. price dispersion in France is mainly spatial (i.e., storespersistently sell products at some relative price level)

4. main determinant of spatial price dispersion is retail chain towhich store belongs, but price levels also vary with localdemand and competition

5. at retail chain level, price dispersion between chains dominateswithin dispersion

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Price and store dataHow to measure price dispersion?Price dispersion in France and elsewhereSource of spatial price dispersion

205 million geolocalized daily price records in France

I one year(Oct2011-Sep2012)

I 1000 barcodes(most widelysold ones)

charac.

I 1600geolocalizedstores

click&collect

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Store characteristics for all grocery stores in FranceI retail chain and buying group Groups’ prices, stores and market shares

I regional branch/wholesaler Regional branches of retail chains and groups

I address Regional representativeness of stores and prices

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How to measure price dispersion?

We define price dispersion as price differences for same product(i.e., barcode) sold in different supermarkets...but differences with respect to what?!

I statistical approach: prefiq = mean(piq)

I economic approach: prefiq = mode(piq)

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Relative pricesRelative price of product i sold in a store s in day t =% deviations from quarterly reference price for each product

prel(iq)ist = (pist − pref

iq )/prefiq

Distribution of relative prices with respect to the product quarterlymean (left panel) and mode (right panel):

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Statistics on price dispersion

Non-trivial overall dispersion of relative prices on average acrossproducts whatever statistic

Measures of price dispersion with respect to product quarterly reference price:mean mode

Mean absolute deviation 1/4n∑n

i=1

∑4q=1 |p

rel(iq)ist | 0.05 0.06

Interdecile range P90(prel(iq)ist )− P10(p

rel(iq)ist ) 0.16 0.18

Interquartile range Q3(prel(iq)ist )− Q1(p

rel(iq)ist ) 0.08 0.08

Standard deviation σ(prel(iq)ist ) 0.07 0.08

Note: Statistics are computed at the barcode-level and then averaged

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Comparison with other measures of price dispersion (1/2)

Dubois&Perrone(2015):France; 1999-2001; 2 barcodes of beer, coffee, cola, whisky with our data:Coefficient of variation of prices 0.11 0.07Interquartile ratio of prices 1.14 1.0995th/5th centile ratio of prices 1.37 1.25Gorodnichenko&Talavera(2017):Canada; Nov2008-Sep2012; goods sold on online price comparatorStandard deviation of log prices 0.13 0.07Interquartile range of log prices 0.11 0.08Gorodnichenko,Sheremirov&Talavera(2014):UK; May2010-Feb2012; goods sold on online shopping platformStandard deviation of log prices 0.23 0.07Coefficient of variation of prices 0.19 0.07Interquartile range of log prices 0.31 0.08

Note: Statistics are computed at the barcode-level and then averaged across barcodes.

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Comparison with other measures of price dispersion (2/2)

Kaplan&Menzio(2015):US; 2004-2009 with our data:Standard deviation of normalized prices 0.19 0.0590th/10th centile ratio of normalized prices 1.72 1.2590th/50th centile ratio of normalized prices 1.26 1.0650th/10th centile ratio of normalized prices 1.35 1.06Gorodnichenko&Talavera(2017):US; Nov2008-Sep2012; goods sold on online price comparatorStandard deviation of log prices 0.16 0.07Interquartile range of log prices 0.17 0.08Gorodnichenko,Sheremirov&Talavera(2014):US; May2010-Feb2012; goods sold on online shopping platformStandard deviation of log prices 0.24 0.07Coefficient of variation of prices 0.22 0.07Interquartile range of log prices 0.35 0.08

Note: Statistics are computed at the barcode-level and then averaged across barcodes.

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Temporal versus spatial price dispersion

Is price dispersion mainly temporal (i.e., each store varies itsprices over time with temporary discounts) or spatial (i.e., someshops persistently sell at lower prices)?

Estimate product by product: prel(iq)ist = αis + αit + εist

I prel(iq)ist is % deviation from product quarterly modal price,

I αis are store s fixed effects,

I αit are daily t fixed effects,

I εist are error terms

−→ FE explain on average 87% of observed dispersion ofrelative prices across stores and time

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Spatial price dispersion dominatesStore FE alone explain more than 80% of observed dispersion ofrelative prices

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What’s behind spatial price dispersion?

1. local factors: local demand and competition

2. national factors: retail chains variable details

Second stage estimating:

I additive fixed effects for product and for retail chain:

αis = γ1 ∗ urban + γ2 ∗ income + γ3 ∗ pop + γ4 ∗ sameprod+

+ γ5 ∗ closest + βi + βr + υis

I fixed effects for interacted product and retail chain:

αis = γ1 ∗ urban + γ2 ∗ income + γ3 ∗ pop + γ4 ∗ sameprod+

+ γ5 ∗ closest + βir + υis

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Local determinants of spatial price dispersion

additive interactedRegressor estimate SE estimate SE

rural -0.06 0.0004*** -0.06 0.0004***semi-urban -0.06 0.0004*** -0.06 0.0003***urban -0.05 0.0004*** -0.05 0.0003***metropolitan (ref) . . .log local pc income 0.0185 0.0002*** 0.0182 0.0002***log local population 0.0023 0.0000*** 0.0024 0.0000***n.stores selling product -0.0007 0.0000*** -0.0007 0.0000***closest large supermkt 0.0003 0.0000*** 0.0003 0.0000***

product FE yes noretail chain FE yes noproduct*retail chain FE no yes

R squared 0.54 0.70

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National determinants of spatial price dispersion

additiveRegressor estimate SEretail chain 1 H -0.02 0.0003***retail chain 1 H/S 0.06 0.0004***retail chain 2 H -0.04 0.0002***retail chain 2 H/S 0.01 0.0002***retail chain 3 H 0.08 0.0002***retail chain 3 H/S 0.12 0.0003***retail chain 4 H -0.03 0.0003***retail chain 4 H/S -0.12 0.0003***retail chain 4 S 0.07 0.0005***retail chain 5 H/S -0.06 0.0002***retail chain 6 H/S (ref) . .product FE yes

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How to measure price dispersion at retail chain level?Between versus withinSources of between and within retail chain dispersion

Price Dispersion Between and Within Retail ChainAn example: Coke can and Coeur Lion camembert

I Between retail chain:dispersion across retail chain of their reference prices

I Within retail chain:dispersion within retail chain of their relative prices

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How to measure price dispersion at retail chain level?Define at the retail chain level:

I Reference prices: prefirq

quarterly product modal price of each retail chain

I Relative prices: prel(irq)ist = (pist − pref

irq )/prefirq

store daily deviations from reference prices

Measure:

I Between retail chain:∣∣∣(pref

irq − prefiq )/pref

iq

∣∣∣average over retail chains and quarters ofabsolute percentage deviation of product quarterly retail chainmodal prices from corresponding national ones

I Within retail chain:∣∣∣(pist − pref

irq )/prefirq

∣∣∣average over stores and quarters ofabsolute value of relative prices at retail chain level

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Between Retail Chain Price Dispersion Dominates

For most products absolute percentage deviations of retail chainmodal prices from national ones across retail chains are larger thanabsolute price deviations within retail chains

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Almost half of prices align with retail chain reference price

Some national pricing strategies at retail chain levelthough to different extents

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Sources of Between Retail Chain Price DispersionWhy do retail chains set different reference prices?

Dependent variable: prefirq

Regressor estimate SEmarket share -224.49 5.1620***geographical presence -0.11 0.0026***mean selling area -0.002 0.0001***mean product range 0.01 0.0016***buying group FE yesproduct FE yes

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Sources of Within Retail Chain Price DispersionWhy are there different prices within same retail chain?

Dependent variable: prel(irq)ist

Regressor estimate SEindependent store 0.009 0.00003***rural -0.019 0.00041***semi-urban -0.021 0.00004***urban -0.019 0.00004***metropolitan (ref) .drives-entrepot -0.012 0.00003***large size supermarkets -0.007 0.00001***medium size supermarkets(ref) .small supermarkets 0.036 0.00007***selling area -0.000001 0.00000***number of products -0.00001 0.00000***n.stores selling product -0.00004 0.00000***closest large supermkt 0.0001 0.00000***log local per capita income 0.001 0.00002***log local population 0.001 0.00000***local branch FE yesregion FE yesproduct FE yes

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ConclusionsAppendix

Conclusions

1. pervasive price dispersion of grocery products in France

2. price dispersion seems more limited in France than inAnglosaxon countries

3. price dispersion is mainly spatial in France

4. as far as store factors are concerned, price levels are mainlydetermined by retail chains, but also increase to some extentwith urban density, strong local demand and weak competition

5. at retail chain level, between dominates within price dispersionand evidence consistent with multistage price setting process

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