Publication Date: February 2017
We quantify the welfare eﬀects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase proﬁts by price discriminating, this need not be true when ﬁrms face competition. With novel data covering the retail home improvement industry, we ﬁnd that Home Depot would beneﬁt from ﬁner pricing but that Lowe’s would prefer coarser pricing. The use of zone pricing softens competition in markets where ﬁrms compete, but it shields consumers from higher prices in markets where ﬁrms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than ﬁner pricing discrimination does.
Zone pricing, Market segmentation, Price discrimination in oligopoly, Micromarketing, retailing
JEL Classification Codes: C13, L61, L20, L67, L81