Prices and Promotions in U.S. Retail Markets: Evidence from Big Data

We document the extent of price dispersion for identical products in the U.S. retail industry. Our analysis isbased on “big data” that allow us to draw general conclusions based on the prices for close to 50,000 products (UPC’s) in 17,184 stores that belong to 81 different retail chains. Both at the national and local market level we find a substantial degree of price dispersion for UPC’s and brands at a given moment in time. We document that both persistent base price differences across stores and price promotions contribute to the overall price variance, and we provide a decomposition of the price variance into base price and promotion components. There is substantial heterogeneity in the degree of price dispersion across products. Some of this heterogeneity can be explained by the degree of product penetration (adoption by households) and thenumber of retail chains that carry a product at the market level. Prices and promotions are more homogenous at the retail chain than at the market level. In particular, within local markets prices and promotions are substantially more similar within stores that belong to the same chain than across stores that belong to different chains. Furthermore, the incidence of price promotions is strongly coordinated within retail chains, both at the local market level and nationally. We present evidence, based on store-level demand estimates for 2,000 brands, that price elasticities and promotion effects are also more similar within stores that belong to the same chain. Hence, the limited level of store-level price discrimination by retail chains reflects, in part, that their stores attract customers with similar demand.