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Steamed about 'sticky pricing'.(UP FRONT)
The costs of commodities have tumbled from their sky-high perch of last year, but prices at the supermarket haven't sunk in sync. Why?
According to Lars Perner, assistant professor of clinical marketing at the University of Southern California's Marshall School of Business, the answer is sticky pricing. That's the term economists use when companies charge higher prices even though the excuse for them no longer exists. And the practice isn't limited to grocers. Many hotels, airlines, and rental-car agencies still tack on energy surcharges, for example.
Why prices are stuck
Companies often base prices on what the competition is charging, not on production cost, Perner says. The first company to hike prices risks losing customers to a competitor that holds the line. On the flip side, a company that undercuts a competitor could ignite a price war. So there's a lot at stake. "If stores stick together, prices tend not to come down," Perner says. "No one wants to blink first," out of fear that others will follow.
Manufacturers may also be reluctant to drop prices out of concern that good ...
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