Multi-Product Pricing: Theory and Evidence from Large Retailers.

This article focuses on the empirical analysis and theoretical modeling of partial synchronisation in price adjustments by large multi-product food retailers in Israel and its implications for the real effects of monetary policy shocks. Using a unique dataset mandated by Israeli law that provides daily prices for thousands of products across 25 large retail chains, the study documents that retailers tend to synchronise price changes around occasional peak days, adjusting about 10% of products simultaneously, a pattern not explained by seasonal or calendar effects. To explain this behaviour, the authors develop a continuous-time multi-product pricing model incorporating two types of menu costs—a fixed cost for any price adjustment and an individual cost per adjusted price—that endogenously generates partial synchronisation consistent with the data. Calibrated to match observed price adjustment frequency, size, and synchronisation (measured by the Fisher-Konieczny index), the model shows that partial synchronisation attenuates the average price response to monetary shocks, producing real output effects similar to those in models without synchronisation, and that only high degrees of synchronisation substantially amplify monetary non-neutrality. An alternative "aisle model," where products are grouped and prices adjusted synchronously within aisles, can replicate some synchronisation features but fails to capture key empirical moments such as the bimodal distribution of price changes and the variability of price spells. The findings suggest that economies of scope in price adjustment lead to partial synchronisation in retail pricing, but this mechanism alone does not fully explain observed price-change kurtosis or strong real effects of monetary policy, highlighting areas for future research including heterogeneity in pricing frictions and broader data coverage.