DP10725 Small Price Responses to Large Demand Shocks
|Author(s):||Etienne Gagnon, J David López-Salido|
|Publication Date:||July 2015|
|Keyword(s):||Demand shocks, inflation, labor conflicts, mass population displacement, sales, severe weather events|
|Programme Areas:||Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10725|
We study the pricing response of U.S. supermarkets to large demand shocks triggered by labor conflicts, mass population relocation, and shopping sprees around major snowstorms and hurricanes. We find that these large swings in demand have, at best, modest effects on the level of retail prices, consistent with flat short- to medium-term supply curves. This finding holds even when shocks are highly persistent and even though stores adjust prices frequently. We also uncover evidence that retailers with radically different demand shocks nonetheless seek to match their local competitors' pricing movements and recourse to sales and promotions.