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Macroeconomic Implications of Uniform Pricing

We compile a new database of grocery prices in Argentina, with over 9 million observations per day. We find uniform pricing both within and across regions—i.e., product prices almost do not vary within stores of a chain. Uniform pricing implies that prices would not change with regional conditions or shocks, particularly so if chains operate in several regions. We confirm this hypothesis using employment data. While prices in stores of chains operating almost exclusively in one region do react to changes in regional employment, stores of chains that operate in many regions do not seem to react to local labor market conditions. We study the impact of uniform pricing on estimates of local and aggregate consumption elasticities in a tractable two-region model in which firms have to set the same price in all regions. The estimated model predicts an almost one-third larger elasticity of consumption to a regional than an aggregate income shock because prices adjust more in response to aggregate shocks. This result highlights that some caution may be necessary when using regional shocks to estimate aggregate elasticities, particularly when the relevant prices are set uniformly across regions.

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https://doi.org/10.20955/wp.2019.024