Zone Pricing in Retail Oligopoly

45 Pages Posted: 2 Mar 2017 Last revised: 29 Apr 2017

Brian Adams

Bureau of Labor Statistics

Kevin R. Williams

Yale School of Management; Yale University - Cowles Foundation

Date Written: April 28, 2017

Abstract

We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe’s would prefer coarser pricing. The use of zone pricing softens competition in markets where firms compete, but it shields consumers from higher prices in markets where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer pricing discrimination does.

Keywords: Zone pricing, Market segmentation, Price discrimination in oligopoly, Micromarketing, Retailing

JEL Classification: C13, L61, L20, L67, L81

Suggested Citation

Adams, Brian and Williams, Kevin R., Zone Pricing in Retail Oligopoly (April 28, 2017). Cowles Foundation Discussion Paper No. 2079. Available at SSRN: https://ssrn.com/abstract=2925863

Brian Adams

Bureau of Labor Statistics ( email )

2 Massachusetts Avenue, NE
Washington, DC 20212
United States

Kevin R. Williams (Contact Author)

Yale School of Management ( email )

New Haven, CT 06520
United States

HOME PAGE: http://som.yale.edu

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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