Supermarket Price Setting on the Two Sides of the Atlantic - Evidence from Scanner Data

Abstract

Food-price inflation is more volatile in the US than in the euro area. We contrast two contributing factors in supermarket price-setting in the two regions by utilizing a novel scanner dataset of Germany, Netherlands, France and Italy (EA4), and an equivalent dataset of the US. First, we document that both the frequency and the size of (sales-filtered) price changes are significantly higher in the US, which indicate a more volatile product-level environment there. Second, we assess the extent of state-dependence in price setting, which can be an additional source of price flexibility through the endogenous selection of large price changes (Golosov and Lucas, 2007; Caballero and Engel, 2007). The unparalleled granularity of the data allows us to measure the necessary data-moments directly. We show that price setting is state-dependent, but state-dependence raises price flexibility similarly mildly in both regions. The evidence is well represented by a state-of-the-art price-setting model (Woodford, 2009). We also provide new evidence on the response of supermarket price-setting to the Covid shock in Germany and Italy.

Pascal Seiler
Pascal Seiler
PhD candidate and Consultant