Empirical investigation of price setting and quantity surcharges in the German food sector

In this study, the authors examined the incidence and determinants of quantity price discounts and quantity price surcharges in the German food sector through a bivariate probit model, using recent consumer scanner survey data. Selectivity bias was corrected for in estimating the magnitude of quantity price surcharges and quantity price discounts, using Heckman's procedure. The findings reveal that almost 10% of the investigated products attract higher unit prices for larger package sizes, although the extent of price surcharges varied among product categories. Quantity price discounts were found to dominate in the firms' pricing strategies. The econometric results showed that the number of package sizes, the average package size, the packaging and storage forms, as well as the price image of a product are all significant determinants of the decision to impose both quantity price surcharges and quantity price discounts. [JEL classification: D40, L11] © 2009 Wiley Periodicals, Inc.