nep-bec New Economics Papers
on Business Economics
Issue of 2011‒08‒15
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Lies and Biased Evaluation: A Real-Effort Experiment By Rosaz, Julie; Villeval, Marie Claire
  2. The Dynamics of Interfirm Networks along the Industry Life Cycle: The Case of the Global Video Games Industry 1987-2007 By Pierre-Alexandre Balland; Mathijs de Vaan; Ron Boschma
  3. G20 and recovery and beyond: an agenda for global governance for the twenty‐first century. By Fitoussi, Jean-Paul; Stiglitz, Joseph; ,
  4. ‘Lead, Follow or Cooperate’: Endogenous Timing & Cooperation in Symmetric Duopoly Games. By Marco Marini; Giorgio Rodano
  5. Surviving the Crisis: Foreign Multinationals vs Domestic Firms in Ireland By Godart, Olivier; Görg, Holger; Hanley, Aoife
  6. Are R&D subsidies provided optimally? Evidence from a simulated agency-firm stochastic dynamic game By Cerulli Giovanni
  7. Does Bill Co-sponsorship Affect Campaign Contributions?: Evidence from the U.S. House of Representatives, 2000-2008 By Shaun M. Tanger; Richard Alan Seals Jr.; David N. Laband
  8. Is the Service Quality of Private Roads too Low, too High, or just Right when Firms compete Stackelberg in Capacity? By Vincent A.C. van den Berg; Erik T. Verhoef
  9. Investment, Consumption, and Hedging under Incomplete Markets By Jianjun Miao; Neng Wang
  10. Capital Structure, Credit Risk, and Macroeconomic Conditions By Dirk Hackbarth; Jianjun Miao; Erwan Morellec
  11. Taxing multinationals under union wage bargaining By Nadine Riedel
  12. The Role of Women in the Italian Network of Boards of Directors, 2003-2010 By Carlo Drago; Francesco Millo; Roberto Ricciuti; Paolo Satella
  13. Agency Issues in a Family Controlled Corporate Governance Structure The Case of Italy By Bhattacharyya Nalinaksha; Elston Julie Ann; Rondi Laura
  14. Optimal Capital Structure and Industry Dynamics By Jianjun Miao
  15. How do firms choose legal form of organization? By Cole, Rebel
  16. Financial Shocks and Industrial Employment By Erdem Basci; Yusuf Soner Baskaya; Mustafa Kilinc
  17. The Incredible Shrinking Portuguese Firm By Serguey Braguinsky; Lee G. Branstetter; Andre Regateiro
  18. Impacts of Central Business District Location: A Hedonic Analysis of Legal Service Establishments By Frank Limehouse; Robert McCormick
  19. Intangible assets and human capital in manufacturing firms By A. Arrighetti; F.Landini; A. Lasagni
  20. Bertrand competition in markets with network effects and switching costs By Suleymanova, Irina; Wey, Christian
  21. How accurate are commercial-real-estate appraisals? evidence from 25 years of NCREIF sales data By Cannon, Susanne; Col, Rebel A.
  22. Do Sales Matter? Evidence from UK Food Retailing By Lloyd, Tim A.; Morgan, C. Wyn; McCorriston, Steve; Zgovu, Evious

  1. By: Rosaz, Julie (University of Lyon 2); Villeval, Marie Claire (CNRS, GATE)
    Abstract: This paper presents the results of a laboratory experiment in which workers perform a real-effort task and supervisors report the workers’ performance to the experimenter. The report is non verifiable and determines the earnings of both the supervisor and the worker. We find that not all the supervisors, but at least one third of them bias their report. Both selfish black lies (increasing the supervisor's earnings while decreasing the worker's payoff) and Pareto white lies (increasing the earnings of both) according to Erat and Gneezy (2009)'s terminology are frequent. In contrast, spiteful black lies (decreasing the earnings of both) and altruistic white lies (increasing the earnings of workers but decreasing those of the supervisor) are almost non-existent. The supervisors' second-order beliefs and their decision to lie are highly correlated, suggesting that guilt aversion plays a role.
    Keywords: evaluation, lie-aversion, guilt aversion, self-image, deception, lies, experiments
    JEL: C91 D82 M52
    Date: 2011–07
  2. By: Pierre-Alexandre Balland; Mathijs de Vaan; Ron Boschma
    Abstract: In this paper, we study the formation of network ties between firms along the life cycle of a creative industry. We focus on three drivers of network formation: i) network endogeneity which stresses a path-dependent change originating from previous network structures, ii) five forms of proximity (e.g. geographical proximity) which ascribe tie formation to the similarity of actors' attributes; and (iii) individual characteristics which refer to the heterogeneity in actors capabilities to exploit external knowledge. The paper employs a stochastic actor-oriented model to estimate the - changing - effects of these drivers on inter-firm network formation in the global video game industry from 1987 to 2007. Our findings indicate that the effects of the drivers of network formation change with the degree of maturity of the industry. To an increasing extent, video game firms tend to partner over shorter distances and with more cognitively similar firms as the industry evolves.
    Keywords: network dynamics, industry life cycle, proximity, creative industry, video game industry, stochastic actor-oriented model
    JEL: D85 B52 O18
    Date: 2011–08
  3. By: Fitoussi, Jean-Paul (Centre de recherche en économie de Sciences Po); Stiglitz, Joseph; ,
    Abstract: This item has no abstract.
    Date: 2011
  4. By: Marco Marini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo" and CREI, Università di Roma III); Giorgio Rodano (Dipartimento di Informatica e Sistemistica "Antonio Ruberti", Università di Roma "La Sapienza")
    Abstract: The aim of this paper is to extend Hamilton and Slutsky's (1990) endogenous timing game by including the possibility for players to cooperate. At an initial stage players are assumed to announce both their purpose to play early or late a given duopoly game as well as their intention to cooperate or not with their rival. The cooperation and timing formation rule is rather simple: when both players agree to cooperate and play with a given timing, they end up playing their actions coordinately and simultaneously. Otherwise, they play as singletons with the timing as prescribed by their own announcement. We check for the existence of a subgame perfect Nash equilibrium (in pure strategies) of such a cooperation-timing duopoly game. Two main results on the emergence of cooperation are provided. If players' actions in the symmetric duopoly game are strategic substitutes and there is no discount, cooperating early (as a grand coalition) is a subgame perfect equilibrium of the extended timing-cooperation game. Conversely, cooperating late (at period two) represents an equilibrium when playersstrategies are strategic complements. Other equilibria are also possible. Most importantly, our model shows that, in general, the success of cooperation is a¤ected by the endogenous timing of the game. Moreover, the slope of players' best-replies appears crucial both for the success of cooperation as well as for the players' choice of sequencing their market actions.
    Keywords: Endogenous Timing, Cooperation
    JEL: C70 C71 D23 D43
    Date: 2011
  5. By: Godart, Olivier (Kiel Institute for the World Economy); Görg, Holger (Kiel Institute for the World Economy); Hanley, Aoife (Kiel Institute for the World Economy)
    Abstract: Starting from the observation that all firms in Ireland (foreign and domestic in manufacturing and services industries) were hit by the crisis, the paper asks whether there is a difference in the behaviour of foreign and domestic firms. One hypothesis is that foreign multinationals are less linked into the Irish economy, so more likely to leave once the economy is hit by a negative shock. The paper discusses background hypotheses before giving empirical evidence from firstly aggregate data, and secondly firm-level observations. The analysis of the latter suggests that foreign firms are not more likely to leave during the crisis than Irish firms. Some policy conclusions are offered in the paper.
    Keywords: firm survival, financial crisis, Ireland
    JEL: F3 J2 L2
    Date: 2011–07
  6. By: Cerulli Giovanni (Ceris - Institute for Economic Research on Firms and Growth, Rome, Italy)
    Abstract: By means of a simulated funding-agency/supported-firm stochastic dynamic game, this paper firstly shows that not only the level of R&D performed by firms is underprovided (as maintained by traditional literature on the subject), but also the level of the subsidy provided by the funding (public) agency (used to correct exactly for the corporate R&D shortage). This event is due to externalities generated by the agency-firm strategic relationship. Two versions of the model are simulated and compared: one assuming rival behaviors between companies and agency, and one associated to the Social-planner (or cooperative) strategy. Secondly, the paper looks at what “welfare” implications are associated to different degree of funding effect’s persistency. Three main conclusions are drawn: (i) the relative quota of subsidy to R&D is undersized in the rival compared to the Social-planner model; (2) the rivalry strategy generates distortions that favor the agency compared to firms; (3) when passing from less persistent to more persistent R&D additionality/crowding-out effect, the lower the bias the greater the variance is and vice versa. As for the management of R&D funding policies, all the elements favouring greater collaboration between agency and firm objectives can help current R&D support to reach its social optimum.
    Keywords: R&D subsidies, Rivalry vs. cooperation, Dynamic-stochastic games, Simulations
    JEL: O38 H2 C73 C63
    Date: 2010–12
  7. By: Shaun M. Tanger; Richard Alan Seals Jr.; David N. Laband
    Abstract: There is considerable variation across members of the United States House of Representatives with respect to the number of bills they co-sponsor each legislative cycle. But we have little understanding of what motivates bill co-sponsorship activity. It seems unlikely that prospective campaign contributors to a specific legislator reward his/her bill co-sponsorship activity per se, as it merely contributes to the productivity of some other member(s) of the legislature. We develop a two-stage least squares (2SLS) model to examine the impact of the number of bills co-sponsored by members of the U.S. House of Representatives on campaign contributions received by those individuals over the time period 2000-2008. Bill co-sponsorship has a large and positive effect on campaign contributions through bill sponsorship.
    Keywords: bill cosponsorship; sponsorship; campaign contributions; coalition building; reputational capitol
    JEL: H10 H11
    Date: 2011–08
  8. By: Vincent A.C. van den Berg (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam)
    Abstract: We study road supply by competing firms between a single origin and destination. In previous studies, firms simultaneously set their tolls and capacities while taking the actions of the others as given in a Nash fashion. Then, under some widely used technical assumptions, firms set a volume/capacity ratio that is socially optimal, and thus the level of travel time or service quality is socially optimal. We find that this result does not hold if capacity and toll setting take place in separate stages, as then firms want to limit the toll competition by setting lower capacities; or when firms set capacities one after another in a Stackelberg fashion, as then firms want to limit their competitors' capacities by setting higher capacities. In our Stackelberg competition, the firms that act last have few if any capacity decisions to influence. Hence, they are more concerned with the toll-competition substage, and set a higher volume/capacity ratio than sociall y optimal. The firms that act first care more about their competitors' capacities that they can influence: they set a lower volume/capacity ratio. So the first firms to enter have a too short travel time from a social perspective, and the last firms a too long travel time. The average private travel time is shorter than socially optimal. Still, in our numerical model, for three or more firms, welfare is higher under Stackelberg competition than under Nash competition, because of the larger total capacity and lower tolls.
    Keywords: Private Road Supply; Oligopoly; Nash Competition; Stackelberg Competition; Service Quality; Volume/Capacity ratio; Traffic Congestion; Congestion Pricing
    JEL: D62 L13 R41 R42 R48
    Date: 2011–05–16
  9. By: Jianjun Miao; Neng Wang
    Abstract: Entrepreneurs often face undiversifiable idiosyncratic risks from their business investments. We extend the standard real options approach to an incomplete markets environment and analyze their joint decisions of business investments, consumption/savings, and portfolio selection. For a lump-sum investment payoff and an agent with a su¡Àciently strong precautionary savings motive, an increase in volatility can accelerate investment, contrary to the standard real options analysis. When the agent can trade the market portfolio to partially hedge against investment risk, the systematic volatility is compensated via the standard CAPM argument, and the idiosyncratic volatility generates a private equity premium. Finally, when the investment payoff is a series of flows, the agent's idiosyncratic risk exposure alters both the implied option value and the implied project value, causing a reversal of the results in the lump-sum payoff case.
    Keywords: real options, idiosyncratic risk, hedging, risk aversion, precautionary savings, incomplete markets
    JEL: G11 G31 E2
    Date: 2011
  10. By: Dirk Hackbarth; Jianjun Miao; Erwan Morellec
    Abstract: This paper develops a framework for analyzing the impact of macroeconomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of empirical implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for debt contracts with very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity.
    Keywords: Dynamic capital structure, Credit spreads, Macroeconomic conditions
    JEL: G12 G32 G33
    Date: 2010–11
  11. By: Nadine Riedel (Centre for Business Taxation, University of Oxford)
    Abstract: This paper investigates corporate taxation under separate accounting (SA) and formula apportionment (FA) in a model with union wage bargaining and multinational firms. Under SA, we find that increases in the corporate tax rate raise the wage level of domestic workers, while they lower the remuneration of foreign workers. The main insight emerging from a tax competition game is that the endogenous wage level gives rise to an ambiguous fiscal externality, which may dampen the race-to-the-bottom in corporate tax rates. A switch to a tax system with FA principles reverses the impact of corporate taxes on negotiated wages. While increases in the corporate tax rate reduce domestic wages, they raise the wage level of foreign workers. In a tax competition game, the endogenous wage level gives rise to a positive fiscal externality that enforces the race-to-the-bottom in corporate tax rates.
    Keywords: corporate taxation, multinational firm, union wage bargaining
    JEL: H3 H5 J7
    Date: 2011
  12. By: Carlo Drago (University of Naples Federico II); Francesco Millo (Department of Economics (University of Verona)); Roberto Ricciuti (Department of Economics (University of Verona)); Paolo Satella (Bank of Italy)
    Abstract: We use an innovative and extended dataset (8 years with 2,057 firms) composed of Italian listed firms. Italy appears to be an interesting case for this kind of study, due to the high presence of interlocking directorate. In particular we use Social Network Analysis to analyze the growth of the female directorship network. We also study the dynamics of change over time, and the different behavior of firms respect the growth of the female directorates. At the same time we study the impact of interlocking directorate and female interlocking directorate on equity value and firm performance. We find that interlocking directorate has a negative impact on equity value and firm performance, which is consistent with economic theory and previous literature findings. Furthermore, female interlocking directorate has no effect on firm value and performance.
    Keywords: Corporate Governance, Interlocking Directorships, Company Performance, Social Network Analysis, Board Diversity.
    JEL: C14 C23 G34 L14 M21
    Date: 2011–07
  13. By: Bhattacharyya Nalinaksha (College of Business and Public Policy, University of Alaska); Elston Julie Ann (College of Business, Oregon State University); Rondi Laura (Politecnico di Torino and Ceris-CNR, Italy)
    Abstract: This study provides empirical evidence on the relationship between dividend payout ratios, executive compensation and agency costs in Italy. Corporate governance in Italy is distinguished by the fact that a large number of Italian firms are family controlled, which may theoretically reduce asymmetry of information and associated agency costs. Using a panel of listed manufacturing firms we find evidence that family control plays a significant role in resolving agency issues, i.e. that increases in family control of the firm lead to a higher dividend payout. Nevertheless, as we also find that managerial compensations are negatively related to dividend payout ratios, even in this family controlled environment, dividends do play their role in mitigating agency problems.
    Keywords: Corporate Governance, Managerial Compensation, Dividends, Family Firms, Italy
    JEL: G32 G35
    Date: 2011–06
  14. By: Jianjun Miao
    Abstract: This paper provides a competitive equilibrium model of capital structure and industry dynamics. In the model, firms make financing, investment, entry, and exit decisions subject to idiosyncratic technology shocks. The capital structure choice reflects the tradeoff between the tax benefits of debt and the associated bankruptcy and agency costs. The interaction between financing and production decisions influences the stationary distribution of firms and their survival probabilities. The analysis demonstrates that the equilibrium output price has an important feedback effect. This effect has a number of testable implications. For example, high growth industries have relatively lower leverage and turnover rates.
    Keywords: capital structure, agency costs, firm turnover, stationary equilibrium
    Date: 2011
  15. By: Cole, Rebel
    Abstract: In this study, we analyze the firm’s choice of legal form of organization (“LFO”). We find that only about one in three firms begins operations as a proprietorship, while almost as many begin as limited-liability companies and as corporations. Moreover, this distribution is remarkably stable over the first four years of the firm’s life. Fewer than one in ten firms changes LFO during its first four years. Those that do change LFO disproportionately move to a more complex form, primarily from proprietorship to a form with limited liability. Our analysis of the firm’s initial choice of LFO reveals that a firm is more likely to choose a more complex LFO when the firm is more complex as proxied by employment size, by offering more complex employee benefit plans, and by offering trade credit. A more complex initial LFO also is more likely when the firm is more highly levered and when its primary owner is more educated; but is less likely when the firm is more profitable, has more tangible assets, uses personal loans for firm financing and when its primary owner is female. Our analysis of the decision to change LFO finds that firms initially organized as LLCs or S-corporations are less likely, while Partnerships are more likely, to change LFO than are Proprietorships or C-corporations. Firms that increase employment or change location between a residence and rented/ purchased space, are more likely to change LFO, as are smaller and more profitable firms. Firms that experience a change in the number of owners (up or down), a decrease in the ownership of the primary owner or a change in industrial classification are more likely to change LFO. Of those firms changing LFO, the choice of a more complex LFO is more likely when the firm has changed location, experienced an increase in the number of owners or the ownership share of the primary owner, but is less likely when the firm has experienced a decrease in the number of owners.
    Keywords: corporation; entrepreneurship; Kauffman Firm Survey; LLC; legal form of organization; organizational form; partnership; proprietorship; small business; start-up
    JEL: G32
    Date: 2011–01–11
  16. By: Erdem Basci; Yusuf Soner Baskaya; Mustafa Kilinc
    Abstract: By using the U.S. NBER-CES industry-level data for the 1962-2005 period, we analyze how exogenous changes in firms'borrowing costs, measured by the spread between Baa and Aaa rated corporate bonds, affect employment dynamics and whether external finance dependence differences across industries lead to different employment responses to financial shocks. In order to identify the exogenous changes in the spreads, we use an index based on the exogenous economic and non-economic events provided by Bloom (2009). Our estimates suggest that a 1-standard deviation exogenous increase in the cost of borrowing, corresponding to a 0.28 percentage point increase in spreads, reduces employment growth by 0.39-0.70 percent for the industries at the median of external finance dependence distribution, depending on the specification. We also find that the industries with higher external finance dependence face higher employment losses following adverse financial shocks. Finally, our out of sample forecasts for the 2008-2009 crisis imply that the increase in spreads between August 2008 and December 2008 can generate a 4.7-5.8 percent decline in manufacturing industry employment, keeping all other factors constant, where the actual decline was 11.4% for 2009.
    Keywords: Employment, Financial Shocks, External Finance Dependence, Working Capital Channel.
    JEL: E24 J23 J63
    Date: 2011
  17. By: Serguey Braguinsky; Lee G. Branstetter; Andre Regateiro
    Abstract: Using Portugal's extensive matched employer-employee data set, this paper documents an unusual feature of the Portuguese economy. For decades, the entire Portuguese firm size distribution has been shifting to the left. We argue in this paper that Portugal's shrinking firms are linked to the country's anemic growth and low productivity. We show that the shift in the Portuguese firm size distribution is not reflected in other advanced industrial economies for which we have been able to obtain comparable data. Careful attempts to account for expanding data coverage, a structural shift from manufacturing to services, and aggressive efforts to "demonopolize" the Portuguese economy leave about half of this shift unexplained by these factors. So, what does explain the shift? We argue that Portugal's uniquely strong protections for regular workers have played an important role. Drawing upon an emerging literature that that attributes much of the productivity gap between advanced nations and developing nations to the misallocation of resources across firms in developing countries, we develop a theoretical model that shows how Portugal's labor market institutions could prevent more productive firms from reaching their optimal size, thereby constraining GDP per capita. Calibration exercises based on this model quantify the degree of labor market distortion consistent with recent shifts in the Portuguese firm size distribution. These calibration exercises suggest quite substantial growth effects could arise if the distortions were lessened or abolished altogether.
    JEL: J21 J58 J80 K3 L51 O12 O41 O52
    Date: 2011–07
  18. By: Frank Limehouse; Robert McCormick
    Abstract: This analysis examines the business impacts on law firms of locating in Central Business Districts (CBDs) in major U.S. cities. Specifically, we measure the price premium that law firms pay to locate in CBDs. Using micro-level data from the 1992 and 2007 Census of Services, we find that after controlling for firm size, firm specialization characteristics, and MSA and county attributes, law firms within CBDs pay about 15 to 20 percent more in overhead compared to those firms outside CBDs – a result consistent across time between 1992 and 2007. When including an important additional measure of firm quality, however, we find that this impact is reduced to about 7 to 9 percent, but still statistically significant. Additional results show that there is a significant correlation between firm quality and CBD location. We also find that firm size and firm specialization measures are important factors in the choice to locate within CBDs. We argue that these results indicate that CBD location for law firms may serve as networking, quality sorting, and branding mechanisms.
    Date: 2011–07
  19. By: A. Arrighetti; F.Landini; A. Lasagni
    Abstract: The positive impact of intangible assets on several measures of economic performance is well documented in the literature. Less clear is what leads firms to invest in intangible assets in the first place. The latter is particularly important since, at least for the Italian manufacturing sector, firms exhibit a very strong heterogeneity in their level of intangible asset investments. In line with the capability-based theory of the firm we argue that the firm’s propensity to invest in intangible assets can be explained by factors that are internal and specific to the firm. Making use of a rich dataset we test and provide support for our hypotheses. In particular we find that the propensity to invest in intangible assets increases with the firm’s size, human capital and organizational complexity and with the past level of intangible assets. This points toward the existence of a cumulative dynamics in the process of intangible assets accumulation that may account for most of the heterogeneity observed in the data. The paper adds to the previous literature in two ways: first it highlights the existence of a strong intra-industry heterogeneity in intangible assets investments; and second, it offers an explanation for such heterogeneity.
    Keywords: : intangible assets, human capital, firms heterogeneity, organizational complexity, complementarity, knowledge economy, organizational capabilities
    JEL: L21 L25 O32
    Date: 2011
  20. By: Suleymanova, Irina; Wey, Christian
    Abstract: We analyze Bertrand duopoly competition in markets with network effects and consumer switching costs. Depending on the ratio of switching costs to network effects, our modelerates four different market patterns: monopolization and market sharing which can be either monotone or alternating. A critical mass effect, where one firm becomes the monopolist for sure only occurs for intermediate values of the ratio, whereas for large switching costs market sharing is the unique equilibrium. For large network effcts both monopoly and market sharing equilibria exist. Our welfare analysis reveals a fundamental conflict between maximization of consumer surplus and social welfare when network effects are large. We also analyze firms' incentives for compatibility and we examine how market outcomes are affected by the switching costs, market expansion, and cost asymmetries. Finally, in a dynamic extension of our model, we show how competition depends on agents' discount factors. --
    Keywords: Network Effects,Switching Costs,Bertrand Competition
    JEL: L13 D43 L41
    Date: 2011
  21. By: Cannon, Susanne; Col, Rebel A.
    Abstract: In this study, we provide new evidence on the performance measurement and reporting of commercial real estate returns. We do so by examining the accuracy of commercial-real-estate appraisals that occurred prior to the sale of properties from the NCREIF National Property Index (“NPI”) during 1984 – 2010, a period which spans two up-and-down cycles of the market. We find that, on average, appraisals are more than 12% above, or below, subsequent sales prices that take place two quarters following the appraisal. Even in a portfolio context, allowing for offsetting positive and negative differences, appraisals are off by an average of 4% – 5 % of value, even after adjusting for capital appreciation during those two quarters. We also provide new evidence regarding how, and by how much, appraised values lag behind sales prices. We find that appraisals appear to lag the true sales prices, falling significantly below in hot markets and remaining significantly above in cold markets. This new evidence provides guidance to investors, regulators and others about how to interpret real-estate indices like the NPI that are based upon appraised values, in both a rising and falling market. Finally, we find that this “appraisal error” is largely systematic; we can explain more than half of the variation in the signed percentage difference in sales price and appraised value. Hence, appraisal errors are not due solely to property-specific heterogeneity.
    Keywords: appraisal; commercial real estate; commingled real estate fund; NCREIF; real estate
    JEL: G11 G23 R33
    Date: 2011–05–25
  22. By: Lloyd, Tim A.; Morgan, C. Wyn; McCorriston, Steve; Zgovu, Evious
    Abstract: This paper assesses the role of sales as a feature of price dynamics using scanner data. The study analyses a unique, high frequency panel of supermarket prices consisting of over 230,000 weekly price observations on around 500 products in 15 categories of food stocked by the UKâs seven largest retail chains. In all, 1,700 weekly time series are available at the barcode-specific level including branded and own-label products. The data allows the frequency, magnitude and duration of sales to be analysed in greater detail than has hitherto been possible with UK data. The main results are: (i) sales are a key feature of aggregate price variation with around 40 per cent of price variation being accounted for by sales once price differences for each UPC level across the major retailers are accounted for; (ii) much of the price variation that is observed in the UK food retailing sector is accounted for by price differences between retailers; (iii) only a small proportion of price variation that is observed in UK food retailing is common across the major retailers suggesting that cost shocks originating at the manufacturing level is not one of the main sources of price variation in the UK; (iv) own-label products also exhibit considerable sales behaviour though this is less important than sales for branded goods; and (v) there is some evidence of coordination in the timing of sales across retailers insofar as the probability of a sale at the UPC level at a given retailer increases if the product is also on sale at another retailer.
    Keywords: Sales, price variation, retail, Consumer/Household Economics, Demand and Price Analysis, L16, L66, Q13.,
    Date: 2011–04

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