On Storekeepers' Pricing Behavior.

This research note deals with a quantitative analysis of differences in percentage gross margin between individual stores in the retail trade. A number of hypotheses on pricing behavior of storekeepers are tested using Dutch survey data from nine different types of retail stores. We define percentage gross margin as a percentage mark-up on costs and make a distinction between out-of-pocket and remaining costs. It appears that the remaining costs are not always passed on completely into the percentage gross margin. This result can be explained in two ways: competition is possibly so heavy that storekeepers are not always in a position to pass on completely their remaining costs, or storekeepers are not very careful about passing on this type of cost to customers. Another finding is that percentage gross margin is inversely related to sales size due to the fact that a higher sales size requires a lower percentage of sales to achieve a given basic reward for storekeepers' labor. Percentage gross margin is of course affected by the competitive strength of a store. This influence is approximated by a store's sales.