Price Differentiation and Dispersion in Retailing

Abstract

Determining the “right” product price is one of the most dazzling challenges of modern retailing. Although the price as a marketing instrument has enormous infl uence on consumer decisions and corporate profits, those responsible for effective pricing and profitable price management continue to face significant difficulties. Progress in the field of digitization allows to set prices more dynamically and individually than ever before. This expands the decision-making space of companies and at the same time increases consumers’ concerns about excessive and unfair prices. However, the question arises whether everything that is technically possible can also be successfully implemented in the market. The present study analyses corporate and consumer behavior and macroeconomic effects of pricing decisions under various conditions (static/dynamic, isolated/within market competition). The results show that the current debate about individualized prices expands well beyond the field of current corporate practice. Retailers are particularly conservative towards certain types of price differentiation such as short-term adjustments depending on the time of day or even customer specific prices. In addition, there is a large number of market barriers that conflict with particularly controversial practices of price differentiation. The study provides insights on how price differentiation can be used to achieve a balance between company interests and consumer protection. Finally, differentiated prices can have a welfareenhancing effect when companies are customer-oriented and rules of fair competitive policy are in place.