Price Rigidity and Market Structure: Evidence from the Japanese Scanner Data
This paper investigates price rigidity arise out of the specific market structures, such as degree of market concentration and pricing decisions of retailers and manufacturers. Using Japanese scanner data that contains transaction prices and sales for more than 1,600 commodity groups from 1988 to 2008, we find statistically significant negative correlation between the degree of market concentration and the frequency of price changes, including both bargain price changes and regular price changes. The results of two-way analysis of variance suggests that the variation of the frequency of price changes depends on the dierences among manufacturers as well as those among retailers.
The relationship between price rigidity and market structure has been discussed since the American economist, Gardinar C. Means suggested that the downward rigidity of price during the Great Depression had a relationship to industrial concentration in a Senate Document in 1935. The implication of Means' findings is that the prices of less competitive markets tend to be sticky. This is referred to as the "administered prices" hypothesis (Domberger, 1979) and still attracts considerable attention. This is partly because empirical literature in this field found strong heterogeneity in price stickiness across commodity items and is interested in the determinants of item-levels variation in the frequency of price changes.