only offered seasonally, such as cherries, and items that are only reported on a monthly basis,
such as milk products, were also excluded. The remaining products included 4 meats, 3 fruits
and 3 vegetables. For these 10 food products, we selected those stores that carry each of these
items at all times. As a criterion for continuous price reporting, we required availability of price
observations for each product in more than 92 % of all weeks from May 1995 to December 2000
(n = 296). For the missing observations, we set the price of the product in the store equal to its
price in the previous week. This entire selection process reduced the number of observations
from around 250,000 for each product to 38,776, a panel corresponding to 131 food stores over
a period of 296 weeks. For the individual stores, information on the corresponding zip code
(exact regional location), the type of the store (see above for definition), the name of the store,
and the company that owns the store are also available. Our final sample of products consists of
fresh beef (braised beef quality without bones), liver sausage (from calves, thin cut, packed in
gold skin), fresh pork steak (“Schnitzel” without bones), fresh turkey breast steak (without skin
and bones), apples (Golden Delicious, size 70 to 80 mm in cross section), pears (table pears of
different sort), citrons (regular quality), lettuce (ice salad), carrots (without foliage), onions
(regular quality of typical sort). Prices are reported in German pennies per kilogram, except for
lettice and citrons (lemons) for which prices are reported in pennies per piece. The stores in our
final sample are summarized in Table 1 by store type and company symbol. The real names of
the companies have been suppressed and replaced by alphabetical letters to preserve
confidentiality.10 <Insert Table 1 about here> The data set consists of a complete panel of retail
prices for ten basic food items in 131 retail stores that have been collected continuously on a
weekly basis from 1995 to 2000. In Figure 1 average prices over all stores (m = 131) are shown
for the entire period of observation to indicate the common price dynamics. <Insert Figure 1
about here> The average prices change from week to week, and the volatility around the
deterministic components are much bigger for meat products than for fruits and vegetables. To
what extent is the price structure at particular retail stores represented by these averages? In
perfect markets, the law of one price would imply that the properties of the average series would
be reflected in the properties of individual prices. In Table 2 average prices over the entire
period of observation and three measures of variation are presented. The figures in the first row
for each product in Table 2 show that average prices vary significantly between store types and
between retailer chains. <Insert Table 2 about here> For each of the ten product markets, we
observe significant differences in average prices across store types. Pork, for instance, is on
average about 3.6 German Marks or 25 % cheaper at CSM or DC compared to SSM. Although
the absolute differences decline for products of lower value, such as fruits and vegetables,
relative deviations between store types occur to be at similar levels for most products. In sum,
CSM and DC store types report the lowest price level compared to SSM and BSM store types.
For meat products, CSM and DC are the cheapest store types, while fruits and vegetable prices
are always the lowest at DC followed by CSM. SSM are the most expensive venue for meat
products, and BSM report the highest average price level in fruits and vegetables. Within store
type variation is substantial on a product basis and differences in average price between clusters
composed of all stores (types and retail companies) are statistically significant, in general.11 In
80 % of all cases the average price for the cluster is was found to be significantly different from
the average price over all stores. As for store types, we observe large differences in average
price levels of the various retail chains. Chain E and F are found to be the cheapest supplier for
nearly all products. Chain D is (with the exception of citrons) always the most expensive chain.
The result for the retailer companies E and F might partly be related to the fact that E and F
include a high percentage of CSM; however, as almost half of the stores of chain D do also
10
11
Because of the small number of observations in some cases we have to be cautious with some conclusions.
For instance, with respect to DI and retail chains D and F.
Total variation is measured by the standard deviation of all observations in the respective cluster.