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Zone Pricing in Retail Oligopoly

Author

Abstract
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.

Suggested Citation

  • Brian Adams & Kevin R. Williams, 2017. "Zone Pricing in Retail Oligopoly," Cowles Foundation Discussion Papers 2079R2, Cowles Foundation for Research in Economics, Yale University, revised Dec 2017.
    • Handle: RePEc:cwl:cwldpp:2079r2
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    More about this item

    Keywords

    Zone pricing; Market segmentation; Price discrimination in oligopoly; Micromarketing; Retailing;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • L67 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Consumer Nondurables: Clothing, Textiles, Shoes, and Leather Goods; Household Goods; Sports Equipment
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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