Uniform Pricing in U.S. Retail Chains
94 Pages Posted: 11 Nov 2017
Date Written: November 7, 2017
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: Suggested Citation