Uniform Pricing in US Retail Chains

Stefano DellaVigna, Matthew Gentzkow

NBER Working Paper No. 23996
Issued in November 2017, Revised in April 2019
NBER Program(s):The Corporate Finance Program, The Economic Fluctuations and Growth Program, The Industrial Organization Program, The International Trade and Investment Program, The Law and Economics Program, The Labor Studies Program, The Monetary Economics Program, The Public Economics Program, The Productivity, Innovation, and Entrepreneurship Program

We show that most US 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 $16m 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 intra-national trade costs.

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Supplementary materials for this paper:

• online appendix

Acknowledgments and Disclosures

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Document Object Identifier (DOI): 10.3386/w23996

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