Working Paper: NBER ID: w23996
Authors: Stefano Dellavigna; Matthew Gentzkow
Abstract: We show that most US food, drugstore, and mass merchandise chains charge nearly-uniform prices across stores, despite wide variation in consumer demographics and competition. Demand estimates reveal substantial within-chain variation in price elasticities and suggest that the median chain sacrifices $16m of annual profit relative to a benchmark of optimal prices. In contrast, differences in average prices between chains are broadly consistent with the optimal benchmark. We discuss a range of explanations for nearly-uniform pricing, highlighting managerial inertia and brand-image concerns as mechanisms frequently mentioned by industry participants. Relative to our optimal benchmark, uniform pricing may significantly increase the prices paid by poorer households relative to the rich, dampen the response of prices to local economic shocks, alter the analysis of mergers in antitrust, and shift the incidence of intra-national trade costs.
Keywords: Uniform Pricing; Retail Chains; Economic Inequality; Price Elasticities
JEL Codes: D9; L1; L2; M31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| uniform pricing (D41) | significant loss of profits (G33) |
| uniform pricing (D41) | prices faced by consumers in the poorest decile increase by 10% (P22) |
| uniform pricing (D41) | dampened response of prices to local economic shocks (E39) |
| uniform pricing (D41) | biases in standard estimates of trade costs (F14) |