Multi-Product Pricing: Theory and Evidence From Large Retailers in Israel

Abstract

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The Real Effects of Monetary Shocks: Evidence from Micro Pricing Moments

“…Which additional modeling assumption(s) can resurrect the negative relation of kurtosis and the non-monotonic relation of the ratio of kurtosis over frequency with monetary non-neutrality in the baseline model? We find, in line with the results, for example, in Bonomo et al (2020) or Karadi and Reiff (2019), that the introduction of leptokurtic shocks leads to a negative relation of kurtosis with monetary non-neutrality and an ambiguous relation of the ratio with non-neutrality. Frequency has a robust negative relation with monetary non-neutrality.…”

“…We have shown this result in the context of kurtosis, frequency and their ratio, and by going through a long list of modeling assumptions. This list could be extended further, for example to take into account empirical phenomena like price adjustment synchronization (Bonomo et al (2020)). Without exhaustively doing so, the broader point of our analysis is to emphasize the challenges that theory faces in light of a complex empirical environment.…”

“…Another literature our paper touches upon argues that conventional pricing moments may not be sufficient statistics for monetary non-neutrality in quantitative models. Dotsey and Wolman (2020), Karadi and Reiff (2019), Alexandrov (2020), Bonomo et al (2020), or Bonomo et al (2021) make such arguments. We make two contributions in this context: First, we provide direct empirical evidence in this regard.…”

“…This analysis builds on several advances that have pushed the modeling frontier in menu cost models, such as Golosov and Lucas (2007), Caballero and Engel (2007), Nakamura and Steinsson (2010) and Midrigan (2011). Our list of modeling assumptions can be extended further as the above papers show, for example to take into account empirical phenomena such as price adjustment synchronization (Bonomo et al (2020)). Without exhaustively doing so, the broader point of our analysis remains to emphasize the challenges that theory faces in light of a complex empirical environment.…”

Price Change Synchronization within and between Firms

“…The industry synchronization effects are found to be small, suggesting that firms either have a degree of pricing power, and/or that the costs of changing prices in response to their competitors' behavior exceed the benefits. Our findings give support to the prevalence of menu costs, scope economies in price changes, and a high degree of within-firm synchronization already documented in a number of countries (Lach and Tsiddon, 1996;Fisher and Konieczny, 2000;Midrigan, 2011;Alvarez and Lippi, 2014;Bhattarai and Schoenle, 2014;Yang, 2020;Dedola et al, 2019;Letterie and Nilsen, 2021;Bonomo et al, 2020). Combined with earlier literature these findings have potentially important implications for the micro-foundations of macroeconomic models and monetary policy…”