Zone Pricing in Retail Oligopoly

49 Pages Posted: 8 Dec 2017 Last revised: 12 Dec 2017

See all articles by Brian Adams

Brian Adams

Bureau of Labor Statistics

Kevin Williams

Yale School of Management; Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

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

Adams, Brian and Williams, Kevin, Zone Pricing in Retail Oligopoly (December 6, 2017). Cowles Foundation Discussion Paper No. 2079R2, Available at SSRN: https://ssrn.com/abstract=3084069 or http://dx.doi.org/10.2139/ssrn.3084069

Brian Adams

Bureau of Labor Statistics ( email )

2 Massachusetts Avenue, NE
Washington, DC 20212
United States

Kevin Williams (Contact Author)

Yale School of Management ( email )

493 College St
New Haven, CT CT 06520
United States

HOME PAGE: http://som.yale.edu

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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