Uniform Pricing in U.S. Retail Chains*

By Stefano DellaVigna, Matthew Gentzkow. Quarterly Journal of Economics, 2019

401 citations recorded by the source corpus.

We show that most U.S. 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 ${\$}$16 million 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 intranational trade costs.

Subfields: Economics and Econometrics, Marketing

View Paper: https://www.semanticscholar.org/paper/b679300c0228310459e862f13d073dfd70178a4e

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Citations in the corpus

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Estimation and Inference about Heterogeneous Treatment Effects in High-Dimensional Dynamic Panels. (2017, background): “…are (1) controlling for endogeneity, that is including sufficiently many observable characteristics that proxy for unobserved ones and (2) having a valid instrument for price that is uncorrelated with demand expectations (e.g., Hausman (1996), Nevo (2001), DellaVigna and Gentzkow (2019)).”
From Cashews to Nudges: The Evolution of Behavioral Economics (2018, neutral): “If Alan chooses 11 A recent paper by DellaVigna and Gentzkow (2017) finds similar evidence of poor firm decision making in retail pricing.”