Uniform Pricing in U.S. Retail Chains*

Abstract

We show that most U.S. food, drugstore, and mass-merchandise chains charge nearly uniform prices across stores, despite wide variation in consumer demographics and competition. Demand estimates reveal substantial within-chain variation in price elasticities and suggest that the median chain sacrifices ${\$}$16 million of annual profit relative to a benchmark of optimal prices. In contrast, differences in average prices between chains are broadly consistent with the optimal benchmark. We discuss a range of explanations for nearly uniform pricing, highlighting managerial inertia and brand image concerns as mechanisms frequently mentioned by industry participants. Relative to our optimal benchmark, uniform pricing may significantly increase the prices paid by poorer households relative to the rich, dampen the response of prices to local economic shocks, alter the analysis of mergers in antitrust, and shift the incidence of intranational trade costs.

Inefficient incentives and nonprice allocations: Experimental evidence from big‐box restaurants

“…It is problematic because it implies goods prices track implicit rental rates, varying smoothly therefore with queues and expected wait times. But this is opposite to what is observed in many retail segments, as many businesses practice uniform pricing (DellaVigna & Gentzkow, 2019), charging the same price for the same good in all situations.…”

How Do Housing Markets Affect Local Consumer Prices? - Evidence from U.S. Cities

“…This result suggests a one-way Granger causality (or predictability) running from HP to CP, but not the other way around. 16 Nevertheless, the inference from the bivariate VECM, which examines each HP-CP pair in each city separately, could be fragile if the relationship was driven by unobservable common factors. This concern is legitimate in our case where local prices of a product are likely to be correlated across cities, possibly through common national factors like national supply chains.…”

Issuance and Incidence: SNAP Benefit Cycles and Grocery Prices

“…In addition, although we document heterogeneity in the size of the within-month elasticity changes across individual products and chains, we observe no systematic relationship between the magnitude of these changes and the price response to SNAP issuance. We interpret these results to suggest that the effect of SNAP issuance on food prices may also be limited due to frictions that would increase the costs to grocers of making such adjustments (e.g., managerial inertia of the form explored in DellaVigna and Gentzkow (2019)).…”

“…Instrumenting product prices with prices of the same product from same-chain stores in other markets (Hausman 1996;Nevo 2001;DellaVigna and Gentzkow 2019), we estimate the effect of SNAP issuance on within-month changes in customer demand elasticity. We find that average demand elasticity declines by approximately 1% in weeks in which all benefits are issued, suggesting that, on average, customers shopping in such weeks are slightly more price sensitive than customers shopping in other weeks of the month.…”