ZONE PRICING IN RETAIL OLIGOPOLY By
نویسندگان
چکیده
We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe’s would prefer coarser pricing. Zone pricing softens competition in markets where firms compete, but it shields consumers from higher prices in rural markets, where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer price discrimination does. JEL Classification: C13, L67, L81 ∗[email protected] †[email protected] ‡A previous version of this paper circulated under the title, "Zone Pricing and Strategic Interaction: Evidence from Drywall." We thank the seminar participants at the University of Minnesota, California State University-East Bay, Marketing Science, University of Wisconsin-Madison, Yale University, Econometric Society Summer Meetings, University of Massachusetts-Amherst, Bureau of Labor Statistics, Department of Justice, Federal Trade Commission, University of Pennsylvania, AEA Winter Meetings, and the University of Chicago for useful comments. We thank Bonnie Murphie and Ryan Ogden for their assistance with Bureau of Labor Statistics data. We thank Mauricio Cáceres Bravo for his excellent research assistance. All views expressed in this paper are those of the authors and do not necessarily reflect the views or policies of the U.S. Bureau of Labor Statistics.
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