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An Empirical Study of National vs. Local Pricing by Chain Stores Under Competition

Author

Listed:
  • Yang Li

    (Cheung Kong Graduate School of Business, 100006 Beijing, China)

  • Brett R. Gordon

    (Northwestern University, Kellogg School of Management, Evanston, Illinois 60208)

  • Oded Netzer

    (Columbia Business School, Columbia University, New York, New York 10027)

Abstract
Geographic price discrimination is generally considered beneficial to firm profitability. However, theoretical results point to conditions under which firms might prefer to price across markets uniformly in oligopolistic settings. This paper provides an empirical analysis of competitive price discrimination and quantitatively assesses the profitability of national pricing relative to store-level pricing policies under different market conditions. Specifically, we construct and estimate a model of retail competition using extensive data from the digital camera market. A series of counterfactuals show that, under reasonable commitment mechanisms, two leading chains would benefit from employing national pricing policies, whereas a discount retailer should target prices in each local market. Additional results explore the boundary conditions of these findings and evaluate hybrid pricing policies.

Suggested Citation

  • Yang Li & Brett R. Gordon & Oded Netzer, 2018. "An Empirical Study of National vs. Local Pricing by Chain Stores Under Competition," Marketing Science, INFORMS, vol. 37(5), pages 812-837, September.
    • Handle: RePEc:inm:ormksc:v:37:y:2018:i:5:p:812-837
    DOI: 10.1287/mksc.2018.1100
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    References listed on IDEAS

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