Pricing Behavior of Multiproduct Retailers
FTC Bureau of Economics Working Paper No. 225
42 Pages Posted: 11 Oct 2006
Date Written: June 2007
Abstract
This paper develops a model of competition among multiproduct retailers that is consistent with observed pricing regularities, e.g., virtually all products have large mass points in their price distributions and most deviations fall below the mass point. The basis of the model is that, because consumers prefer to buy a bundle of goods from the same retailer, a given discount on any one good in the bundle will have a similar effect on consumers' likelihood of visiting that retailer. This implies that discounts on goods sold by a single retailer are substitute instruments for retailers, and factors that influence one good's price will affect the pricing of other goods. Hence, if intertemporal price changes are a means of price discriminating (as suggested in the literature), the impact of these changes will be reflected in the prices of many goods, including those for which discrimination is not feasible.
Keywords: Multiproduct retailing, Pricing Dynamics, Sales
JEL Classification: L81, L4, L11, D21
Suggested Citation: Suggested Citation
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