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Zone Pricing in Retail Oligopoly

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Listed:
  • Brian Adams
  • Kevin R. Williams

Abstract

We 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.

Suggested Citation

  • Brian Adams & Kevin R. Williams, 2019. "Zone Pricing in Retail Oligopoly," American Economic Journal: Microeconomics, American Economic Association, vol. 11(1), pages 124-156, February.
  • Handle: RePEc:aea:aejmic:v:11:y:2019:i:1:p:124-56
    Note: DOI: 10.1257/mic.20170130
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    References listed on IDEAS

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    2. Cardell, N. Scott, 1997. "Variance Components Structures for the Extreme-Value and Logistic Distributions with Application to Models of Heterogeneity," Econometric Theory, Cambridge University Press, vol. 13(2), pages 185-213, April.
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    Cited by:

    1. Eugenio J. Miravete & Katja Seim & Jeff Thurk, 2017. "One Markup to Rule Them All: Taxation by Liquor Pricing Regulation," NBER Working Papers 24124, National Bureau of Economic Research, Inc.
    2. Stefano DellaVigna & Matthew Gentzkow, 2019. "Uniform Pricing in U.S. Retail Chains," The Quarterly Journal of Economics, Oxford University Press, vol. 134(4), pages 2011-2084.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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