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National pricing with local quality competition

Author

Listed:
  • Tommy Staahl Gabrielsen

    (University of Bergen)

  • Bjørn Olav Johansen

    (University of Bergen)

  • Odd Rune Straume

    (NIPE and Department of Economics, University of Minho and Department of Economics, University of Bergen)

Abstract

We study the incentives of national retail chains to adopt national (uniform) prices across local markets that differ in size and competition intensity. In addition to price, the chains may also compete along a quality dimension, and quality is always set locally. We show that absent quality competition, the chains will never use national pricing. However, if quality competition is sufficiently strong there exist equilibria where at least one of the chains adopts national pricing. We also identify cases in which national pricing benefi ts (harms) all consumers, even in markets where such a pricing strategy leads to higher (lower) prices.

Suggested Citation

  • Tommy Staahl Gabrielsen & Bjørn Olav Johansen & Odd Rune Straume, 2020. "National pricing with local quality competition," NIPE Working Papers 09/2020, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:09/2020
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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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