Supermarket Pricing Strategies
AbstractMost supermarket firms choose to position themselves by offering either "Every Day Low Prices" (EDLP) across several items or offering temporary price reductions (promotions) on a limited range of items. While this choice has been addressed from a theoretical perspective in both the marketing and economic literature, relatively little is known about how these decisions are made in practice, especially within a competitive environment. This paper exploits a unique store level dataset consisting of every supermarket operating in the United States in 1998. For each of these stores, we observe the pricing strategy the firm has chosen to follow, as reported by the firm itself. Using a system of simultaneous discrete choice models, we estimate each store's choice of pricing strategy, conditional on its expectation over the choices of its rivals. We find evidence that firms cluster by strategy, choosing actions that agree with those of its rivals. We also find a significant impact of various demographic and firm characteristics, providing some qualified support for several specific predictions from marketing theory.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 06-02.
Length: 35 pages
Date of creation: 2006
Date of revision:
Contact details of provider:
Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
Fax: (919) 684-8974
Web page: http://econ.duke.edu/
EDLP; promotional pricing; positioning strategies; supermarkets; discrete games;
Other versions of this item:
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
This paper has been announced in the following NEP Reports:
- NEP-AGR-2006-03-11 (Agricultural Economics)
- NEP-ALL-2006-03-11 (All new papers)
- NEP-COM-2006-03-11 (Industrial Competition)
- NEP-DCM-2006-03-11 (Discrete Choice Models)
- NEP-IND-2006-03-11 (Industrial Organization)
- NEP-MIC-2006-03-11 (Microeconomics)
- NEP-MKT-2006-03-11 (Marketing)
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