Chapter 5: Multiproduct Retailing
5. Multiproduct retailing Earlier in the book, Chapter 3 to be precise, we explored several aspects of the multiproduct nature of retail demand. In this chapter we take results developed there together with features of retail supply developed in Chapter 4 and use them to heighten our understanding of several features of multiproduct retailing. Section 5.1 asks, should we focus on the prices of individual items or on the prices of items at individual stores or, more generally, at points of purchase or sale? This question becomes important precisely because retailing is normally a multiproduct activity. This feature has a variety of important and wide-ranging implications. For instance, in a somewhat lengthy Appendix I examine the interaction between the multiproduct feature of retailing, which requires the construction of price and cost of living indexes, and reliance on scanner-based data. While the underlying theory of cost of living indexes has been developed in terms of consumption, scanner data are based on purchases. The Appendix relies on recent literature to illustrate how to reconcile the difference. Remaining sections of the chapter consider different aspects of the multiproduct nature of retailing in relation to the pricing policies followed by retailers. Section 5.2 focuses on the pricing policy of a retailer with constant distribution services, revisits some elementary results and ties the analysis to concepts introduced in Chapters 3 and 4. Section 5.3 illustrates aspects of the pricing policies of a multiproduct retailer with examples that rely on the two studies from the marketing...
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