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Retail Price Fixity as a Facilitating Mechanism

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  • Timothy J. Richards
  • Paul M. Patterson

Abstract

Previous theoretical explanations for retail price fixity show that fixed retail prices can be consistent with either competitive or imperfectly competitive behavior. We develop a conceptual model of retail pricing wherein fixed price points are facilitating mechanisms for tacit collusion. A non-cooperative equilibrium in fixed retail prices is supported through credible threats to revert to Nash pricing if cheating is suspected. We test the implications of this model using a two-stage, ordered probit approach in weekly supermarket pricing data. The results show that price fixity does support collusive equilibria among retailers, but other factors may also explain retail price behavior. Copyright 2005, Oxford University Press.

Suggested Citation

  • Timothy J. Richards & Paul M. Patterson, 2005. "Retail Price Fixity as a Facilitating Mechanism," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 85-102.
  • Handle: RePEc:oup:ajagec:v:87:y:2005:i:1:p:85-102
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    File URL: http://hdl.handle.net/10.1111/j.0002-9092.2005.00704.x
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    1. repec:rae:jourae:v:96:y:2015:i:1:p:187-237 is not listed on IDEAS
    2. repec:ags:frraes:276765 is not listed on IDEAS
    3. Irz, Xavier & Mazzocchi, Mario & Réquillart, Vincent & Soler, Louis-Georges, 2015. "Research in Food Economics: past trends and new challenges," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 96(01), pages 187-237, March.
    4. José Juan Cáceres-Hernández & Gloria Martín-Rodríguez, 2007. "Heterogeneous Seasonal Patterns in Agricultural Data and Evolving Splines," The IUP Journal of Agricultural Economics, IUP Publications, vol. 0(3), pages 48-65, July.

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