Market competition and pricing strategies in retail supply chains

This study provides a better explanation for the continued prevalence of high-low (Hi-Lo) pricing strategy. We investigate the impact of market competition on adopting two different pricing strategies in the retail industry: everyday low price (EDLP) strategy and Hi-Lo strategy. We developed two analytic models using a game-theoretic modeling approach: the profit maximization model and the sales revenue maximization model. We then conducted an econometric analysis based on retail store-level dataset. The result shows that an EDLP player's equilibrium price depends highly on the cost level rather than competitor's price whereas the Hi-Lo player's equilibrium price depends mainly on the range of promotional basket as well as the cost level.