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Optimal Pricing of Access and Secondary Goods with Repeat Purchases: Evidence from Online Grocery Shopping and Delivery Fees

Author

Listed:
  • Ricard Gil

    (Johns Hopkins Carey Business School, 100 International Drive, Baltimore, MD 21202, USA)

  • Evsen Korkmaz

    (University of Amsterdam, Amsterdam Business School, M2-07, Amsterdam 1018TV, The Netherlands)

  • Ozge Sahin

    (Johns Hopkins Carey Business School, 100 International Drive, Baltimore, MD 21202, USA)

Abstract

In this paper we investigate optimal pricing strategies for an online grocery retailer who derives its profits from delivery fees and grocery sales. We base our theoretical framework upon the well-established work of Schmalensee (1981) in two-part pricing, while allowing for repeat purchase occasions as in Phillips and Battalio (1983). We derive testable implications that we take to data using a unique dataset detailing transaction information from an online grocery retailer in a Western European country. We find that the number of transactions and the average size of grocery baskets purchased are positively correlated. We also observe two customer groups in our data that differ in their willingness to pay. This observation together with robust evidence that price-sensitive customers buy larger baskets are consistent with an optimal pricing strategy that offers discounts for B2B customers and charges higher prices to households for grocery delivery. We conclude that firms may increase profits by implementing alternative and simpler pricing strategies that combine second and third degree price discrimination schemes.

Suggested Citation

  • Ricard Gil & Evsen Korkmaz & Ozge Sahin, 2014. "Optimal Pricing of Access and Secondary Goods with Repeat Purchases: Evidence from Online Grocery Shopping and Delivery Fees," Working Papers 14-10, NET Institute.
    • Handle: RePEc:net:wpaper:14-10
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Metering; price discrimination; online grocery sales;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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