Multi-product Pricing: Theory and Evidence From Large Retailers

We study a unique dataset with comprehensive coverage of daily prices in large multiproduct retailers in Israel. Retail stores synchronize price changes around occasional “peak” days when they reprice around 10% of their products. To assess aggregate implications of partial price synchronization, we develop a new model in which multiproduct firms face economies of scope in price adjustment, and synchronization is endogenous. Synchronization of price changes attenuates the average price response to monetary shocks, but only high degrees of synchronization can substantially strengthen the real effects of monetary policy shocks. Our calibrated model generates real effects similar in magnitude to those in Golosov and Lucas (2007).