Decision Stages and Asymmetries in Regular Retail Price Pass-Through
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Decision-stages-Duncan-Simester.pdf
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957.39 KB
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Author(s)
McShane, Blakeley B.
Chen, Chaoqun
Anderson, Eric T.
Simester, Duncan
Date Issued
March 2016
Journal
Marketing Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
McShane, Blakeley B. et al. “Decision Stages and Asymmetries in Regular Retail Price Pass-Through.” Marketing Science 35, 4 (July 2016): 619–639 © 2016 Institute for Operations Research and the Management Sciences (INFORMS)
Version
Author's final manuscript
Abstract
We study the pass-through of wholesale price changes onto regular retail prices using an unusually detailed data set obtained from a major retailer. We model pass-through as a two-stage decision process that reflects both whether as well as how much to change the regular retail price. We show that pass-through is strongly asymmetric with respect to wholesale price increases versus decreases. Wholesale price increases are passed through to regular retail prices 70% of the time while wholesale price decreases are passed through only 9% of the time. Pass-through is also asymmetric with respect to the magnitude of the wholesale price change, with the magnitude affecting the response to wholesale price increases but not decreases. Finally, we show that covariates such as private label versus national brand, 99-cent price endings, and the time since the last wholesale price change have a much stronger impact on the first stage of the decision process (i.e., whether to change the regular retail price) than on the second stage (i.e., how much to change the regular retail price).
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1287/mksc.2015.0947
