An Empirical Study of National vs. Local Pricing by Chain Stores under Competition

This paper empirically investigates the pricing strategies of national chain stores, focusing on the choice between uniform national pricing and flexible local pricing. We develop a model of pricing for a national chain that competes with local rivals. The model allows us to assess the trade-offs between the two pricing strategies, such as the benefits of responding to local market conditions versus the costs of implementing a complex pricing scheme. We estimate the model using a unique data set on prices and sales for a large grocery retailer. The results show that the optimal pricing strategy depends on the degree of competition and the heterogeneity of local markets. In more competitive and heterogeneous markets, the benefits of local pricing are larger. We conduct a counterfactual analysis to quantify the profit implications of switching from national to local pricing. The findings suggest that the retailer in our study could significantly increase its profits by adopting a more flexible pricing strategy.

Recommended citation: Li, Y., Gordon, B. R., & Netzer, O. (2018). "An Empirical Study of National vs. Local Pricing by Chain Stores under Competition." Marketing Science. 37(5), 812-837.
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