Pricing Cues and Retail Competition

In recent years, many retailers have begun hiding pricing cues (e.g., regular price, strikethrough price, etc.) from consumers. This practice is puzzling because pricing cues can generate higher demand for retailers by providing additional transaction utility to consumers, a fact that is extensively documented in the extant literature. We answer the following questions: How are prices affected by the display of pricing cues? When should retailers provide pricing cues? Which retailer -- service-focused or price-focused -- is more likely to display pricing cues and under what conditions?<br><br>To address these issues, we analyze a model of two competing retailers, asymmetric in their sales support, deciding whether to display pricing cues. We find that when a retailer does not display its pricing cue, a competing retailer that displays its pricing cue charges a higher price and thus enjoys a margin advantage. In equilibrium, a service-focused retailer is more likely than a price-focused retailer to display pricing cues when its pricing cue is less informative at the price-focused retailer. We provide managerial recommendations to retailers based on our findings. Empirical analysis of data on prices and pricing cues for various consumer electronics from a number of online retailers validates our analytical findings.