An Empirical Study of National vs. Local Pricing by Chain Stores under Competition

Marketing Science, Forthcoming

62 Pages Posted: 15 Feb 2017 Last revised: 30 Jan 2018

Yang Li

Cheung Kong Graduate School of Business

Brett R. Gordon

Northwestern University - Kellogg School of Management

Oded Netzer

Columbia Business School - Marketing

Date Written: December 1, 2017

Abstract

Geographic price discrimination is generally considered beneficial to firm profitability. However, theoretical results point to conditions under which firms might prefer to price uniformly across markets in oligopolistic settings. This paper provides an empirical analysis of competitive price discrimination and quantitatively assesses the profitability of national pricing relative to store-level pricing policies under different market conditions. Specifically, we construct and estimate a model of retail competition using extensive data from the digital camera market. A series of counterfactuals show that, under reasonable commitment mechanisms, two leading chains would benefit from employing national pricing policies, whereas the discount retailer should target prices in each local market. Additional results explore the boundary conditions of these findings and evaluate hybrid pricing policies.

Keywords: Pricing, Retailing, Competitive Strategy, Geographic Price Targeting, National Pricing Policy, Local Pricing Policy, Hybrid Pricing Policy.

JEL Classification: M30, M31

Suggested Citation

Li, Yang and Gordon, Brett R. and Netzer, Oded, An Empirical Study of National vs. Local Pricing by Chain Stores under Competition (December 1, 2017). Marketing Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2916519 or http://dx.doi.org/10.2139/ssrn.2916519

Yang Li (Contact Author)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E2
One East Chang An Avenue
Beijing, Beijing 100738
China
+861085188858 (Phone)

HOME PAGE: http://english.ckgsb.edu.cn/?q=node/381

Brett R. Gordon

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Oded Netzer

Columbia Business School - Marketing ( email )

New York, NY 10027
United States

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