The size and frequency of price changes: Evidence from grocery stores

We analyze a data set (on grocery store prices for lettuce) with many advantages over those used previously to explain firm heterogeneity in the size and frequency of price changes. Despite common shocks to their input price, grocers' price changes vary widely in size and frequency. We test hypotheses emerging from a theoretical framework. We find that product, firm, and market characteristics associated with the benefits from and costs of changing price explain grocer-to-grocer variation in the size and frequency of price changes. More concentrated markets, larger firm size, and thinner product markets lead to infrequent and large price changes.