Zone Pricing in Retail Oligopoly
49 Pages Posted: 8 Dec 2017 Last revised: 12 Dec 2017
There are 2 versions of this paper
Zone Pricing in Retail Oligopoly
Date Written: December 6, 2017
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.
Keywords: Zone pricing, Market segmentation, Price discrimination in oligopoly, Micromarketing, retailing
JEL Classification: C13, L67, L81
Suggested Citation: Suggested Citation