Expectations and retail profit margins

In this study expectations and prediction errors are introduced in the context of retail price setting. A new model and a new data set are used to examine whether prediction errors influence retail price setting, whether prediction errors cause only limited price changes to maintain price stability and whether there are differences in influences according to whether prediction errors are positive or negative. The model is an extended version of a full costs pricing model and the averaged data are for a large number of shop types in German retailing for a long series of successive years.