Zone Pricing in Retail Oligopoly
AbstractWe quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home-improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe's would prefer coarser pricing. Zone pricing softens competition in markets where firms compete, but it shields consumers from higher prices in rural markets, where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer price discrimination does.
CitationAdams, Brian, and Kevin R. Williams. 2019. "Zone Pricing in Retail Oligopoly." American Economic Journal: Microeconomics, 11 (1): 124-56. DOI: 10.1257/mic.20170130
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- L13 Oligopoly and Other Imperfect Markets
- L81 Retail and Wholesale Trade; e-Commerce
- M31 Marketing
- R32 Other Spatial Production and Pricing Analysis