Abstract
The paper investigates the synchronization of price changes in the context of retail tire dealers in Sao Paulo-Brazil and selected items in supermarkets for cleaning supplies and food in Rio de Janeiro-Brazil. Results indicate similar and non-negligible synchronization for different brands, although magnitudes are distant from a perfect synchronization pattern. We find interesting patterns in inter-firm competition, with similar magnitudes across different tire types. Intra-chain synchronization is substantial, indicating that a common price adjustment policy tends to be sustained for each chain across different products.
Highlights
Temporal price dispersion is recognized as a relevant phenomenon
Empirical consistency with randomized prices is found in terms of substantial switches across distribution quantiles over time [see e.g. Lach (2002) for Israel, and Hollanda (2006) and Rega (2007) for Brazil], or consistency with the theoretical equilibrium price density as investigated by Villas-Boas (1995)
Studies that assess the distribution of price adjustments and survival of prices are becoming more common, as exemplified by Dias et al (2007) and Barros and Matos (2009)
Summary
Temporal price dispersion is recognized as a relevant phenomenon. the informational foundation of price promotions (as in Varian, 1980) indicates the prevalence of mixed strategies in pricing strategies. It is important to stress that the index in this paper does not capture relative magnitudes of adjustment but only their occurrence pattern In this case one captures whether there is a general synchronization pattern across different products within a given brand and independent of the seller. In the present application we have information at the chain (firm) level (and not the identification of particular stores within a chain) for the tire segment and the FK index would reveal only the degree of intra-chain synchronization across products. This more common aggregated indicator is the less informative as it can consider a set of heterogeneous products. Each index is calculated for a given brand of a particular tire type across the different dealers and at the intra-chain level
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