Pricing Dynamics of Multi-Product Retailers

Multi-product retailers use complicated pricing strategies that vary across items and over time. Using a large data set containing prices on twenty categories of goods from thirty U.S. metro areas for the period 1988-1997, we provide systematic evidence on the use of sales promotions by grocery retailers. Sales are common; while retailers seem to generally offer items at a regular price, 10 percent of sampled items are temporarily offered at a 5 percent discount on a typical day. Sales behavior displays considerable heterogeneity both across goods within a category and over time. Within each category of goods, retailers regularly offer some items on sale, while other items are rarely, if ever, put on sale. Over time, retailers are more likely to offer an item on sale when demand for that item is high. These results suggest that studies that use retail prices, but do not account for sales behavior, are likely to yield misleading results.