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Sales Promotion and Cooperative Retail Pricing Strategies

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  • Richards, Timothy J.
  • Patterson, Paul M.

Abstract

Supermarket retailers make strategic pricing decisions in a high-frequency, repeated game environment both in buying and selling fresh produce. In this context, there is some question as to whether a non-cooperative equilibrium can emerge that produces margins above the competitive level. Supermarket pricing results from tacitly collusive equilibria supported by trigger price strategies played in upstream markets. Upstream activities are, in turn, driven by periodic retail price promotions. We test this hypothesis using a sample of fresh produce pricing data from 20 supermarket chains in markets distributed throughout the U.S. Our results support the existence of tacitly collusive non-cooperative equilibria in upstream and downstream markets.

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Bibliographic Info

Paper provided by Arizona State University, Morrison School of Agribusiness and Resource Management in its series Working Papers with number 28542.

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Date of creation: 2004
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Handle: RePEc:ags:asumwp:28542

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Keywords: dynamics; game theory; Nash equilibrium; perishables; supermarkets; tacit collusion; trigger prices.; Demand and Price Analysis;

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  1. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  2. Dimitri, Carolyn & Tegene, Abebayehu & Kaufman, Phillip R., 2003. "U.S. Fresh Produce Markets: Marketing Channels, Trade Practices, And Retail Pricing Behavior," Agricultural Economics Reports 33907, United States Department of Agriculture, Economic Research Service.
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Cited by:
  1. Richards, Timothy J. & Acharya, Ram N. & Molina, Ignacio, 2009. "Retail and Wholesale Market Power in Organic Foods," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49329, Agricultural and Applied Economics Association.
  2. Hamister, James W. & Suresh, Nallan C., 2008. "The impact of pricing policy on sales variability in a supermarket retail context," International Journal of Production Economics, Elsevier, vol. 111(2), pages 441-455, February.

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