In their working newspaper on "Uniform Pricing inwards US Retail Chains," Stefano DellaVigna too Matthew Gentzkow argue that most retail chains practice inwards fact accuse the same (or nearly the same) prices across stores, but that profits would travel higher if they did varied prices instead (Stanford Institute for Economic Policy Research Working Paper No. 17-042, Nov 14, 2017). Obviously, this finding poses a puzzle. They clit the information on 73 retail chains inwards this way:
In this paper, nosotros present that most large US food, drugstore, too majority trade chains inwards fact set uniform or nearly-uniform prices across their stores. ... Our analysis is based on store-level scanner information for 9,415 nutrient stores, 9,977 drugstores, too 3,288 majority trade stores from the Nielsen-Kilts retail panel. ... Our outset ready of results documents the extent of uniform pricing. While nosotros honour no cases inwards which the measured prices are the same for all products across stores, the variation inwards prices inside chains is modest inwards absolute terms too far smaller than the variation betwixt stores inwards unlike chains. This is truthful despite the fact that consumer demographics too levels of contest vary signifi cantly inside chains: consumer income per capita ranges from $22,700 at the average tenth percentile store to $40,900 at the average 90th-percentile store, too the number of competing stores inside 10 kilometers varies from 0.6 at the 10th-percentile store to 8.3 at the 90th-percentile store. Prices are highly similar inside chains fifty-fifty if nosotros focus on store pairs that confront rattling unlike income levels, or that are inwards geographically separated markets.In i calculation, if the stores raised prices inwards stores where the average buyer had higher incomes, they could increase profits past times 7%. Why don't stores practice this? Indeed, they betoken to other evidence on European retailers, too on the sale of certain-brand-name products inwards US markets, which suggests that this designing of strangely uniform prices is widespread. In the fashion of whatever skillful detective story, in that place are a listing of suspects too clues.
For example, advertising powerfulness practice a province of affairs where a for certain cost is publicized to a broad area. However, the chains inwards this report advertise generally on a city-by-city basis, too it would non travel hard for them to vary their advertising across cities.
Another possible explanation is that chain stores don't desire to travel into a cost state of war alongside their competitors. With uniform prices, they are signalling to their competitors that they won't travel locally flexible inwards their cost choices. However, the evidence shows the same uniformity both when chains are facing lots of competitors, too when they are not, which suggests that worries almost avoiding a cost state of war aren't the master copy issue.
Perhaps varying prices across stores would look unfair to consumers, too thence impairment the build shout out of the store. But non many consumers are going to comparison-shop across stores inwards widely dissever areas. And if prices are higher for stores inwards high-income areas than inwards low-income areas, it's hard to imagine that lots of consumers would thought this every bit violation of roughly ethical rule.
The explanation these authors bring out most probable involves managerial decision-making costs: that is, figuring out how to ready varying prices across stores, too how to adapt those prices over time, is a substantial task. Unless the reward inwards terms of higher profits is large, the inertia of uniform pricing becomes attractive. The authors bring out roughly suggestive evidence that store-level cost flexibility does seem higher, too seems to travel increasing, inwards settings where the net turn a profit potential is larger, which they ascribe inwards business office to the powerfulness of improved IT scientific discipline to proceed runway of varying prices across stores.
The authors forthrightly banknote that "none of this evidence is de finitive," which agency that the phenomenon of what seem to travel overly uniform prices is a skillful talker for courses inwards microeconomics too describe of piece of occupation concern schools, too an interesting inquiry topic.
In add-on the designing of overly uniform prices is to a greater extent than than but an intellectual puzzle, every bit the authors betoken out. For example, less-uniform prices powerfulness hateful lower prices for areas alongside low-income consumers, spell "redistributing" the higher prices to higher-income consumers, too inwards this way bring down inequality. Less-uniform prices would hateful bigger cost cuts when a local economic scheme has a shaky time, which inwards plough could help that local economic scheme recover. On the other side, less-uniform prices would presumably hateful higher prices for those inwards remote areas, alongside less geographic competition. Sumber http://conversableeconomist.blogspot.com/
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