A Theory of Retail Pricing

After surveying existing models of retailing, this paper concentrates on the idea that the shop saves its customers costs by assembling goods in one p lace. This introduces an essential nonconvexity and importantly affec ts the conditions under which shops compete with each other and the c onstraints on their price setting. Under the admittedly unrealistic a ssumption of full buyer information, a theory of retail pricing is de veloped.