Grocery Price Setting and Quantity Surcharges

Quantity surcharges occur when the unit price of a brand’s larger-sized package is higher than the unit price of an equivalent smaller-sized package. The authors examine how price setting practices in the grocery industry can help to explain the existence of quantity surcharges. Two studies support the contention that common pricing practices aimed at establishing a favorable store-price image can result in quantity surcharges. First, an experiment shows that consumer demand and the importance price setters place on establishing a low store-price image have an interactive effect on price-setting behavior. Second, an examination of retail sales volume, price, and cost data suggests that such price-setting reactions can result in quantity surcharges when certain asymmetries in demand exist across package sizes. Managerial and public policy implications are discussed along with areas for future study.  Return to Dr. Manning's Home Page