The Pricing Strategies of Online Grocery Retailers

Abstract

Matched product data is collected from the leading online grocers in the U.S. The same exact products are identified in scanner data. The paper documents pricing strategies within and across online (and offline) retailers. First, online retailers exhibit substantially less uniform pricing than offline retailers. Second, online price differentiation across competing chains in narrow geographies is higher than offline retailers. Third, variation in offline elasticities, shipping distance, pricing frequency, and local demo- graphics are utilized to explain price differentiation. Surprisingly, pricing technology (across time) magnifies price differentiation (across locations). This evidence motivates a high-frequency study to unpack the patterns of algorithmic pricing. The data shows that algorithms: personalize prices at the delivery zipcode level, update prices very frequently and in tiny magnitudes, reduce price synchronization, exhibit lower menu costs, constantly explore the price grid, and often match competitors’ prices. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

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