Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 8/20: National pricing with local quality competition

Tommy Staahl Gabrielsen (), Bjørn Olav Johansen () and Odd Rune Straume ()
Additional contact information
Tommy Staahl Gabrielsen: University of Bergen, Department of Economics, Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Bjørn Olav Johansen: University of Bergen, Department of Economics, Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
Odd Rune Straume: Department of Economics, University of Minho

Abstract: We study the incentives of national retail chains to adopt national (uniform) prices across local markets that differ in size and competition intensity. In addition to price, the chains may also compete along a quality dimension, and quality is always set locally. We show that absent quality competition, the chains will never use national pricing. However, if quality competition is sufficiently strong there exist equilibria where at least one of the chains adopts national pricing. We also identify cases in which national pricing benefits (harms) all consumers, even in markets where such a pricing strategy leads to higher (lower) prices.

Keywords: National pricing; local pricing; retail chains; price and quality competition

JEL-codes: L11; L13; L21

33 pages, November 11, 2020

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