Uniform Pricing in US Retail Chains

Stefano DellaVigna, Matthew Gentzkow

NBER Working Paper No. 23996
Issued in November 2017
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Industrial Organization, International Trade and Investment, Law and Economics, Labor Studies, Monetary Economics, Public Economics, Productivity, Innovation, and Entrepreneurship

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.

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Acknowledgments and Disclosures

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Document Object Identifier (DOI): 10.3386/w23996

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