Multiproduct Retailing

Rhodes, Andrew (2015) Multiproduct Retailing. The Review Of Economic Studies, 82. pp. 360-390.

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We study the pricing behaviour of a multiproduct firm, when consumers must pay a search cost to learn its prices. Equilibrium prices are high, because consumers understand that visiting a store exposes them to a hold-up problem. However, a firm with more products charges lower prices, because it attracts consumers who are more price sensitive. Similarly, when a firm advertises a low price on one product, consumers rationally expect it to charge somewhat lower prices on its other products as well.We therefore find that having a large product range, and advertising a low price on one product, are substitute ways of building a “low-price image”. Finally, we show that in a competitive setting each product has a high regular price, with firms occasionally giving random discounts that are positively correlated across products.

Item Type: Article
Language: English
Date: 2015
Refereed: Yes
Uncontrolled Keywords: Retailing, Multiproduct search, Advertising
JEL codes: D83 - Search; Learning; Information and Knowledge; Communication; Belief
M37 - Advertising
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 Apr 2016 11:25
Last Modified: 24 Jan 2019 00:08

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