Further Reflections on Retail Pricing

Abstract

The article Imperfect Competition in Retail Trades by Mrs. Hood and Mr. Yamey, published in the May issue of Economica, contains some interesting and important reflections on the character of retail trade. If the main purpose of the authors had been, in the light of these reflections, to question the use of static models in the analysis of competition in retail trade and if they had followed up their leading statement: It is not useful to rely upon the essentially static and long-run theory of monopolistic competition to explain the economics of retailing by an attempt to construct a dynamic model, their work would indeed have been a major contribution. The declared purpose of the authors is, however, much more limited and much more doubtful. It is to dispute the appraisal of the working of competition in retail trade contained in Henry Smith's Retail Distribution and in my Distributive Trading. What they object to is the discussion of retail trade in terms of the analysis of imperfect competition and oligopoly: The main point at issue, they write, is whether the degree and nature of the imperfections are such that it is more realistic to stress the imperfections than it is to stress the competition (particularly in its price-reducing aspect) in the study of retail markets . They hold that a dominant emphasis on imperfections is mistaken. This is the first point they wish to establish and it is critical in intent. Their second point is positive and has serious practical implications: in the absence of resale price maintenance, they argue, price competition in retail trade would be sufficiently ardent to bring about excess capacity in retailing as a consequence of the ease of entry into the distributive trades and a sign of disequilibrium but in no sense as a normal outcome of the way in which competition works at retail, which is what the theory of imperfect markets implies. The practical inference they draw is as follows It appears to