Uniform Pricing in U.S. Retail Chains

94 Pages Posted: 11 Nov 2017

See all articles by Stefano DellaVigna

Stefano DellaVigna

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

Matthew Gentzkow

Stanford University

Date Written: November 7, 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 the level of competition. Estimating a model of consumer demand reveals substantial within-chain variation in price elasticities and suggests that the average chain sacrifices seven percent of profits relative to a benchmark of flexible prices. In contrast, differences in average prices between chains broadly conform to the predictions of the model. As possible explanations for nearly-uniform pricing, we discuss advertising, tacit collusion, fairness concerns, and managerial fixed costs, and find the most support for the last explanation. We show that the uniform pricing we document significantly increases the prices paid by poorer households relative to the rich, likely dampens the overall response of prices to local economic shocks, and may also shift the incidence of intra-national trade costs.

Keywords: Retail Pricing, Demand Elasticity, Behavioral Firms

JEL Classification: D9, L1, L2, M31

Suggested Citation

DellaVigna, Stefano and Gentzkow, Matthew, Uniform Pricing in U.S. Retail Chains (November 7, 2017). Available at SSRN: https://ssrn.com/abstract=3067508 or http://dx.doi.org/10.2139/ssrn.3067508

Stefano DellaVigna (Contact Author)

University of California, Berkeley ( email )

Economics Department
549 Evans Hall #3880
Berkeley, CA 94720
United States
510-643-0715 (Phone)
510-642-6615 (Fax)

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

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Matthew Gentzkow

Stanford University ( email )

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