Quantum Prices

Abstract

Online data was collected for 350,000 products from over 65 fashion retailers in the U.S. and the U.K. Many retailers practice an extreme form of stickiness described as quantum prices: a large number of differentiated products are priced using few sparse prices, with price changes occurring rarely and in large magnitudes. Quantum prices exist within categories (similar products) and across product introductions (over time). Most surprisingly, it also occurs across categories (very different products). Normalized measures indicate substantial price clustering beyond the role of popular prices, assortment size, or digit endings. Quantum prices imply frictions in lumpy price adjustments through product mix, inflation measurement, and in the law-of-one-price.