Pricing decisions, competition and liquidity constraints

Abstract

PurposeThis study investigates the pricing decisions of the UK wholesale and retail food, beverages and tobacco sector over 2007–2016 using 19 four-digit level NACE Rev.2 classification industries.Design/methodology/approachThe Hall (1988) and Roeger (1995) model is employed to estimate the price-cost margin for the aggregate sector and each constituent industry.FindingsThe results suggest the presence of weak imperfect competitive conduct as the markup value is close to perfect competition. Moreover, it is found that industries with higher market share and liquidity reserves tend to charge a lower markup, validating the presence of price wars and competitive incentives in the sector.Originality/valueThis paper contributes to the literature of pricing decisions and how access to available liquidity may affect the selling price of products. The pricing strategies also depend on the market structure as firms operating in more competitive sectors may start price wars more often than their counterparts in more concentrated sectors. Therefore, this study adds value to the investigation of pricing decisions under liquidity constraints across the UK wholesale and retail food, beverages and tobacco firms.