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Flexible or Uniform? Optimal Pricing Strategies of Chains

Author

Listed:
  • Anastasia Antsygina
  • Ekaterina Kazakova
  • Alexander Tarasov

Abstract

We develop a model of spatial competition with two heterogeneous in their market access chains, choosing between third-degree price discrimination in their local markets (flexible pricing) and a unified chain-level price (uniform pricing). The markets are interconnected with each other via consumers who commute between them and can make purchases in locations where they do not reside. Our model supports an asymmetric equilibrium, in which the two pricing strategies co-exist: the larger chain uses uniform pricing, while the smaller chain employs flexible pricing. We also find that the chains never choose the pricing strategies that maximize the total consumer surplus.

Suggested Citation

  • Anastasia Antsygina & Ekaterina Kazakova & Alexander Tarasov, 2024. "Flexible or Uniform? Optimal Pricing Strategies of Chains," CESifo Working Paper Series 11576, CESifo.
    • Handle: RePEc:ces:ceswps:_11576
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    References listed on IDEAS

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    1. Fabra, Natalia & Reguant, Mar, 2020. "A model of search with price discrimination," European Economic Review, Elsevier, vol. 129(C).
    2. Alberto Cavallo, 2017. "Are Online and Offline Prices Similar? Evidence from Large Multi-channel Retailers," American Economic Review, American Economic Association, vol. 107(1), pages 283-303, January.
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    4. Ben Shiller & Joel Waldfogel, 2011. "Music for a Song: An Empirical Look at Uniform Pricing and Its Alternatives," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 630-660, December.
    5. Yang Li & Brett R. Gordon & Oded Netzer, 2018. "An Empirical Study of National vs. Local Pricing by Chain Stores Under Competition," Marketing Science, INFORMS, vol. 37(5), pages 812-837, September.
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    More about this item

    Keywords

    spatial competition; price discrimination; uniform pricing; commuters;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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