Working Paper Series no. 746. Using a novel dataset from a large supermarket retailer in a European country that never engages in temporary sales, we establish that prices are actually as sticky as regular prices. Circumventing the debate on whether sales have to be included or excluded from price adjustments, we find evidence consistent with state-dependent price setting in a multiproduct firm. In particular, our data exhibit responsiveness of prices to changes to aggregate demand shifts, a more than trivial share of very small price changes, synchronization of price changes across items especially within the same product category. Price rigidity and the extent of state-dependence is heterogeneous across items. In particular, we find that pricing of top sales items (and even more of private label ones) is more flexible and state-dependent, which is consistent with price setting in a multiproduct firm characterized by rational inattention..
