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Retail Zone Pricing and Simulated Price Effects of Upstream Mergers

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  • Geoffrey Pofahl
  • Oral Capps
  • H. Alan Love

Abstract

Despite the oft-recognized reality of zone pricing by food retailers, this form of price discrimination has received very little attention within the context of upstream merger analysis. Promoting this issue to 'center stage', we relax the conventional merger simulation assumption of uniform pass-through by retailers. Relaxing this assumption allows us to explore the potential impacts of zone pricing on post-merger price effects. Using the ready-to-eat cereals industry as a backdrop, we show empirically that high-income price zones are more significantly affected by post-merger price increases than low-income price zones. Ignoring retail price discrimination veils a potentially complex and diverse set of price effects that are otherwise lost by averaging across all price zones.

Suggested Citation

  • Geoffrey Pofahl & Oral Capps & H. Alan Love, 2006. "Retail Zone Pricing and Simulated Price Effects of Upstream Mergers," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(2), pages 195-215.
    • Handle: RePEc:taf:ijecbs:v:13:y:2006:i:2:p:195-215
    DOI: 10.1080/13571510600784433
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    2. Toro-Gonzalez, Daniel & McCluskey, Jill J. & Mittelhammer, Ron, 2014. "Beer Snobs Do Exist: Estimation of Beer Demand by Type," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 39(2), pages 1-14.
    3. James K. Binkley & Susan E. Chen, 2016. "Consumer Shopping Strategies and Prices Paid in Retail Food Markets," Journal of Consumer Affairs, Wiley Blackwell, vol. 50(3), pages 557-584, November.

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