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Rapid price changes make retailers more vulnerable to shocks | Supply Chain Dive

Now controlling nearly half of all e-commerce in the U.S., Amazon is influencing the retail industry in profound ways. With competition on the rise, fading lines between digital and physical retail, and more transparent pricing, many retailers are following the lead of the e-commerce giant by changing prices more frequently.

Both online and brick-and-mortar retailers are now using regular price changes to balance competitiveness with profit margins. While this may enable them to survive, the growing pace of price changes indicates they’re also more likely to pass on costs to consumers at a faster pace than they were in the past.

An increased frequency of price changes
Economists have long questioned whether the competition between online and traditional retailers is reducing retail markups and putting downward pressure on prices. But an even bigger issue may be how online pricing competition affects pricing behaviors and price dispersion across locations.

The high degree of price flexibility and the prevalence of uniform pricing across locations could make prices more sensitive to nationwide shocks, said Alberto Cavallo, an associate professor of business administration at Harvard Business School. Cavallo prepared a research paper for the 2018 Jackson Hole Economic Policy Symposium in August 2018, and said the pace of price changes has been increasing since 2008.

Cavallo’s research noted the average duration for regular price changes fell from 6.7 months in the period of 2008 to 2010 to only 3.7 months in the period from 2014 to 2017.

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Rapid price changes make retailers more vulnerable to shocks | Supply Chain Dive.

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