Driving Factors of Retail Price Variation

Posted by D. Daniel Sokol

Chenguang Li, University College Dublin and Richard Volpe, United States Department of Agriculture explain Driving Factors of Retail Price Variation.

ABSTRACT: This study explores the strategic pricing behaviors across retail chains for produce products. We adopt a Panel-VAR model to identify the driving factors of retail price variation and find that retail price history, competition, product cost are among the key drivers of retail price change. Forecast Error Variance Decomposition (FEVD) is used to quantify the relative impact of driving factors to retail price changes and show how they affect prices differently across retail chains. We also find that higher responsiveness to competition may indicate superior management ability in price setting that associates with better profitability in practice.