2 ESSENTIAL CHARACTERISTICS OF RETAIL MARKETS AND THEIR ECONOMIC CONSEQUENCES

Retail firms provide customers with a variety of distribution services. Higher levels of these services cost the firms more to produce but reduce costs for their customers; these distribution services are usually not priced separately from the products purchased; in addition, some distribution services are available to all items in an assortment (common) and others are available to a few (specific). Incorporation of these characteristics into the analysis of retail markets generates novel results on the nature of pricing policies, on their interaction with the provision of distribution services, and on the effects of competitive behavior.