Vertical structure and prices

Tyre Price Dispersion across Retail Outlets in the UK, by Juan Delgado and Michael Waterson.

The Journal of Industrial Economics, (2003); vol. 51(4), pp. 491-509.

We investigate price dispersion in a retail market (car tyres) characterised by outlets each selling a range of products, some of which are manufactured by their owners. Consumers face substantial price dispersion across outlets even for very tightly defined products. We show that this price dispersion has systematic components relating to retailer-manufacturer interactions. One specific result is that chains owned by manufacturers sell other manufacturers’ tyres on average nearly 20% more expensively than do independent stores and over 11% more expensively than their own equivalent branded product.

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