The Distribution of Food Retail Prices and the Euro Changeover: Signpost Items Versus Occasional Goods

Abstract

The Euro changeover distorted previously well-formed nominal price patterns. Food retailers may have reacted by adjusting prices to reintroduce psychological prices as before the Euro changeover. We employ a detailed data set of German food retail prices before and after the Euro changeover to test three different benchmarks indicating potential adjustments of prices. However, none of these benchmarks do adequately reflect the actual distribution of prices. We find that prices of signpost items follow best a conversion at the official rate. Also, signpost items show a slower price adjustment. Occasional goods' prices indicate a reestablishment of psychological price patterns, in particular for the ending digits; price distributions are adjusted faster. Further, price inflation is about zero for both goods, but prices in particular for signpost items have been significantly raised just before the Euro changeover. These different pricing patterns may be explained by consumer behavior. Consumers react more sensitive to price changes of frequently purchased goods (signpost items), and thus, retailers convert prices at the official rate and postpone price adjustments for these items after the Euro changeover. [JEL Classifications: D40, L66, Q13]. C 2015 Wiley Periodicals, Inc.

Psychological pricing in online food retail

“…Later studies (e.g. Wisniewski and Blattberg, 1983; Stiving and Winer, 1997; Fengler and Winter, 2001; Herrmann and Moeser, 2006; Baumgartner and Steiner, 2007; Levy et al , 2011; Macé, 2012; Schroeder et al , 2016) show that nine-ending prices continue to be widespread in food retail, making up between 50% and more than 90% of all food prices. In other, non-food retail sectors, between 20 and 65% of all prices end in the digit 9 (Holdershaw et al , 1997; Schindler and Kirby, 1997; Stiving and Winer, 1997; Schindler, 2006).…”