The pricing of delivery services

Due to spatial separation between points of distribution and consumption, a vital feature of retailing is the provision of delivery services by customers, retailers, or transport intermediaries. Some store retailers, many Internet retailers, and most transport intermediaries use a multizone pricing plan or a generalized N-zone menu plan. We extend spatial pricing theory to encompass multizone plans. We prove that the optimal number of zones varies with the level of demand relative to the spatial dispersion of customers, and with the cost of implementing a zonal plan. We show that a small number of zones capture almost all the profit attainable with a spatially discriminatory plan.