Sales of fresh food products are a predominant feature in retail pricing around the world. Price-based sales offer significant price cuts in products for a limited time and are the most popular form of promotional sales in Europe. From a consumer perspective, it is of interest to determine whether such price-based sales are reflected in the price of typical market baskets, or whether they are financed by price increases for other products as suggested by the loss- leader hypothesis. Competitive market theories suggest that a sale signals a reduction in market basket price. Within this setting, this article empirically examines the implications of sales for the market basket prices. Results are drawn from analysis of a unique data set for fresh food items in German grocery stores over the period from 1995 to 2000. Results indicate that in the short-run the market basket price for fresh food decreases with the number of fresh food product sales, consistent with competitive pricing. However, over time, our dynamic modelling results are consistent with a dynamic form of the loss-leader hypothesis as evidence is found that market basket price increases over time overwhelming the short-run reduction. JEL classification: L11, D40
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