Uniform Pricing in Us Retail Chains

60 Pages Posted: 6 Nov 2017 Last revised: 30 Apr 2019

See all articles by Stefano DellaVigna

Stefano DellaVigna

University of California, Berkeley; National Bureau of Economic Research (NBER)

Matthew Gentzkow

Stanford University

Multiple version iconThere are 2 versions of this paper

Date Written: November 2017

Abstract

We show that most US food, drugstore, and mass merchandise chains charge nearly-uniform prices across stores, despite wide variation in consumer demographics and competition. Demand estimates reveal substantial within-chain variation in price elasticities and suggest that the median chain sacrifices $16m of annual profit relative to a benchmark of optimal prices. In contrast, differences in average prices between chains are broadly consistent with the optimal benchmark. We discuss a range of explanations for nearly-uniform pricing, highlighting managerial inertia and brand-image concerns as mechanisms frequently mentioned by industry participants. Relative to our optimal benchmark, uniform pricing may significantly increase the prices paid by poorer households relative to the rich, dampen the response of prices to local economic shocks, alter the analysis of mergers in antitrust, and shift the incidence of intra-national trade costs.

Suggested Citation

DellaVigna, Stefano and Gentzkow, Matthew, Uniform Pricing in Us Retail Chains (November 2017). NBER Working Paper No. w23996. Available at SSRN: https://ssrn.com/abstract=3065807

Stefano DellaVigna (Contact Author)

University of California, Berkeley ( email )

Economics Department
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HOME PAGE: http://emlab.berkeley.edu/users/sdellavi/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Matthew Gentzkow

Stanford University ( email )

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