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Sales Promotion and Cooperative Retail Pricing Strategies

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  • Timothy Richards
  • Paul Patterson

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. This hypothesis is tested using a sample of fresh produce pricing data from 20 US supermarket chains. The results support the existence of tacitly collusive non-cooperative equilibria in upstream and downstream markets. Copyright Springer 2005

Suggested Citation

  • Timothy Richards & Paul Patterson, 2005. "Sales Promotion and Cooperative Retail Pricing Strategies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(4), pages 391-413, June.
    • Handle: RePEc:kap:revind:v:26:y:2005:i:4:p:391-413
    DOI: 10.1007/s11151-005-0182-y
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    1. Dimitri, Carolyn & Tegene, Abebayehu & Kaufman, Phillip R., 2003. "U.S. Fresh Produce Markets: Marketing Channels, Trade Practices, And Retail Pricing Behavior," Agricultural Economic Reports 33907, United States Department of Agriculture, Economic Research Service.
    2. 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.
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    Cited by:

    1. Franz Wirl, 2015. "Downstream and upstream oligopolies when retailer’s effort matters," Journal of Economics, Springer, vol. 116(2), pages 99-127, October.
    2. 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.
    3. 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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