NATIONAL RETAIL CHAINS’ PRICE RESPONSE TO FOOD SALES TAXES: EVIDENCE IN FLUID MILK
Access to this document is restricted. Some items have been embargoed at the request of the author, but will be made publicly available after the "No Access Until" date.
During the embargo period, you may request access to the item by clicking the link to the restricted file(s) and completing the request form. If we have contact information for a Cornell author, we will contact the author and request permission to provide access. If we do not have contact information for a Cornell author, or the author denies or does not respond to our inquiry, we will not be able to provide access. For more information, review our policies for restricted content.
The importance of understanding taxation and its effects on economic agents is paramount. However, there is a scarcity of literature exploring how changes in grocery taxation can affect retailers’ pricing strategies and sales volumes. In this study, we employ Nielsen Retail Scanner Data for shelf-stable fluid milk over a 12-month period in 2013, leveraging the reduction of the state grocery tax on July 1st in Tennessee, West Virginia, and Kansas as the event of interest. Through a Difference-in-Differences analysis, we investigate the treatment effect of the grocery tax reduction on retailers’ sales volumes and pricing for shelf-stable fluid milk. Our findings indicate that the reduction in grocery tax led to a decrease in price by 3.05% and an increase in sales volume by 8.87%. We attribute the price reduction to market power and the substitution effects across different channels. Our analysis reveals that the predominant negative impact on price comes from Food Stores, whereas Convenience Stores exhibit a positive effect on pricing. Meanwhile, our results suggest that Drug Stores and Mass Merchandisers adopt a uniform pricing strategy.