Price competition in retailing: The importance of the price density function

•The price density function is a convenient tool for retail pricing strategy analysis.•Relative PDF integrates the pricing strategy of local competitors.•We show how aspects of pricing strategy impact store and category sales.

Focusing on two determinant aspects of retail competition, prices and catchment area, this paper aims to specifically investigate the importance of the relative price density function. We answer such questions as whether it pays for a store to offer more low-priced items in a given category than its close competitors and whether a retailer should have a consistent assortment in terms of price tier frequency across all categories. To tackle these issues, we use a store-level panel database provided by IRI covering 34 categories and 150 stores in one province.