Date of Award
Culminating Project Type
Master of Business Administration: MBA
College of Liberal Arts
Winston D. Stahlecker
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
In October 1973, the Minnesota State Liquor Commissioner authorized retailers to include prices in store window displays. Laws had previously prohibited this type of advertising. The new policy has, in effect, increased the amount of information the consumer possesses prior to entering the store. This study examined the effects of these new regulations on the pricing and advertising policies of liquor retailers.
Prices of twenty-one brands of blended whisky were collected from fifteen St. Cloud area retailers during February, July, October and December 1973. Retailer characteristics, including advertising expenditures, number of advertisements, store size, and the relative location to traffic and other retailers, were recorded.
Using the periodic prices, a t-statistic was calculated to determine if prices were significantly lower with limited price advertising than with nonprice advertising. Retailers were also classified according to their advertising expenditures and comparisons were made to determine if a price difference existed between these groups of retailers. Periodic prices were compared to determine if prices offered by retailers were more dispersed than the prices under price advertising policies.
An attempt was also made to ascertain the determinants of prices. Regression analysis was performed using price and other characteristics of the retailers. The analysis indicated which factors were influential in determining the retailers' prices. The four periodic prices were examined separately to observe any changes in the price determinants.
Prices were lower under limited price advertising policies than when price posting was unlawful. Even after adjusting for the decrease in the wholesale price, 90 percent of the brands had lower prices in December than in July. Only three of the brands, however, had significantly lower prices. The average price for all brands decrease by $0.15 per quart. Heavy advertisers decreased their prices by $0.076, some advertisers by $0.151, and nonadvertisers by $0.259.
Under nonprice advertising policies, prices offered by heavy advertisers were lower than the prices of some advertisers and nonadvertisers for several brands. In December, however, the number of brands had decreased considerably. Prices of nonadvertisers and some advertisers were not significant from one another.
Price dispersion did increase for several brands, but generally, prices under price advertising policies were not more dispersed than prices under nonprice advertising policies.
In examining the price determinants, advertising variables were significant in July, but not in December.
By allowing price posting, price competition appears to be affecting prices, and lower consumer costs in two ways. The average price has decreased. The consumer's search cost is reduced in some instances. These cost reductions have lowered the total cost of purchase.
Kolb, Randal D. A., "The Effect of Changes in Price Advertising Regulations upon the Retail Liquor Market" (1974). Culminating Projects in Business. 1.