NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Quantum Prices

Diego Aparicio, Roberto Rigobon

NBER Working Paper No. 26646
Issued in January 2020
NBER Program(s):International Finance and Macroeconomics, Monetary Economics

This paper studies pricing in the fashion retail industry. Online data was collected for approximately 350,000 distinct products from over 65 retailers in the U.S. and the U.K. We present evidence that a fair fraction of retailers implement an extreme form of price stickiness that we describe as quantum prices: a large number of different products are priced using just a small number of sparse prices, with price changes occurring rarely and in large increments. Normalized price clustering measures are used to show that retailers use quantum prices within- and across- categories, and this clustering is not explained by popular prices, ranges of prices, assortment size, or digit endings. This pricing strategy is consistent with a behavioral model where fewer prices makes price advertising more effective. An implication of this model is that advertising is increasingly effective when the same prices are used across product lines, i.e. for new products. Finally, quantum prices affect product introductions and price adjustment strategies at the firm level, while it creates larger deviations of the law of one price and hinders the computation of inflation at the macro level.

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Document Object Identifier (DOI): 10.3386/w26646

 
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