Different Flavor, Same Price: The Puzzle of Uniform Pricing for Differentiated Products

Abstract

Retailers typically sell many different products from the same manufacturer at the same price. I consider managerial menu costs as an explanation for this uniform pricing puzzle, using a structural model to estimate the counterfactual profits that would be lost by a retailer switching from a non-uniform to a uniform pricing regime in the carbonated soft drink category. The results suggest that when a retail store faces even a relatively small cost to determine optimal non-uniform prices, it may be optimal to charge the same price for many products.

Keywords: pricing, line pricing, flavors, differentiated products, method of simulated moments, retail, grocery

JEL Classification: C13, C33, D12, D43, D81