Supermarket Pricing Strategies

Paul Ellickson and Sanjog Misra

No 06-02, Working Papers from Duke University, Department of Economics

Abstract: Most supermarket firms choose to position themselves by offering either "Every Day Low Prices" (EDLP) across several items or offering temporary price reductions (promotions) on a limited range of items. While this choice has been addressed from a theoretical perspective in both the marketing and economic literature, relatively little is known about how these decisions are made in practice, especially within a competitive environment. This paper exploits a unique store level dataset consisting of every supermarket operating in the United States in 1998. For each of these stores, we observe the pricing strategy the firm has chosen to follow, as reported by the firm itself. Using a system of simultaneous discrete choice models, we estimate each store's choice of pricing strategy, conditional on its expectation over the choices of its rivals. We find evidence that firms cluster by strategy, choosing actions that agree with those of its rivals. We also find a significant impact of various demographic and firm characteristics, providing some qualified support for several specific predictions from marketing theory.

Keywords: EDLP; promotional pricing; positioning strategies; supermarkets; discrete games (search for similar items in EconPapers)
JEL-codes: L11 L81 M31 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2006
New Economics Papers: this item is included in nep-agr, nep-com, nep-dcm, nep-ind, nep-mic and nep-mkt
References: View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Supermarket Pricing Strategies (2008)
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