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Consumer Shopping Behavior: How Much Do Consumers Save?

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  • Rachel Griffith
  • Ephraim Leibtag
  • Andrew Leicester
  • Aviv Nevo

Abstract

This paper documents the potential and actual savings that consumers realize from four particular types of purchasing behavior: purchasing on sale; buying in bulk (at a lower per unit price); buying generic brands; and choosing outlets. How much can and do households save through each of these behaviors? How do these patterns vary with consumer demographics? We use data collected by a marketing firm on all food purchases brought into the home for a large, nationally representative sample of U.K. households in 2006. We are interested in how consumer choice affects the measurement of price changes. In particular, a standard price index based on a fixed basket of goods will overstate the rise in the true cost of living because it does not properly consider sales and bulk purchasing. According to our measures, the extent of this bias might be of the same or even greater magnitude than the better-known substitution and outlet biases.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.99
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 23 (2009)
Issue (Month): 2 (Spring)
Pages: 99-120

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Handle: RePEc:aea:jecper:v:23:y:2009:i:2:p:99-120

Note: DOI: 10.1257/jep.23.2.99
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References

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  1. Boizot, Christine & Robin, Jean-Marc & Visser, Michael, 2001. "The Demand for Food Products: An Analysis of Interpurchase Times and Purchased Quantities," Economic Journal, Royal Economic Society, vol. 111(470), pages 391-419, April.
  2. Iga Hendel & Aviv Nevo, 2002. "Sales and Consumer Inventory," Microeconomics 0201001, EconWPA.
  3. Jerry Hausman & Ephraim Leibtag, 2004. "CPI Bias from Supercenters: Does the BLS Know that Wal-Mart Exists?," NBER Working Papers 10712, National Bureau of Economic Research, Inc.
  4. Jack E. Triplett, 2003. "Using Scanner Data in Consumer Price Indexes. Some Neglected Conceptual Considerations," NBER Chapters, in: Scanner Data and Price Indexes, pages 151-162 National Bureau of Economic Research, Inc.
  5. Robert C. Feenstra & Matthew D. Shapiro, 2001. "High-Frequency Substitution and the Measurement of Price Indexes," NBER Working Papers 8176, National Bureau of Economic Research, Inc.
  6. Charles L. Schultze, 2003. "The Consumer Price Index: Conceptual Issues and Practical Suggestions," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 3-22, Winter.
  7. Mark Aguiar & Erik Hurst, 2007. "Life-Cycle Prices and Production," American Economic Review, American Economic Association, vol. 97(5), pages 1533-1559, December.
  8. Igal Hendel & Aviv Nevo, 2006. "Measuring the Implications of Sales and Consumer Inventory Behavior," Econometrica, Econometric Society, vol. 74(6), pages 1637-1673, November.
  9. repec:inr:wpaper:249990 is not listed on IDEAS
  10. Reinsdorf, Marshall, 1994. "The Effect of Price Dispersion on Cost of Living Indexes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 137-49, February.
  11. Gicheva, Dora & Hastings, Justine & Villas-Boas, Sofia B, 2008. "Revisiting the Income Effect: Gasoline Prices and Grocery Purchases," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7087m1p6, Department of Agricultural & Resource Economics, UC Berkeley.
  12. Jack Triplett, 2004. "Handbook on Hedonic Indexes and Quality Adjustments in Price Indexes: Special Application to Information Technology Products," OECD Science, Technology and Industry Working Papers 2004/9, OECD Publishing.
  13. Jerry Hausman, 2003. "Sources of Bias and Solutions to Bias in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 23-44, Winter.
  14. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
  15. Baye, Michael R, 1985. "Price Dispersion and Functional Price Indices," Econometrica, Econometric Society, vol. 53(1), pages 213-23, January.
  16. Ian Crawford, 1994. "UK household cost-of-living indices, 1979-92," Fiscal Studies, Institute for Fiscal Studies, vol. 15(4), pages 1-28, January.
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Citations

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Cited by:
  1. Aguirregabiria, Victor & Nevo, Aviv, 2010. "Recent developments in empirical IO: dynamic demand and dynamic games," MPRA Paper 27814, University Library of Munich, Germany.
  2. Seaton, Jonathan S. & Waterson, Michael, 2012. "Identifying and characterising price leadership in British supermarkets," The Warwick Economics Research Paper Series (TWERPS) 987, University of Warwick, Department of Economics.
  3. Giovanni Anania & Rosanna Nisticò, 2011. "Price Dispersion, Search Costs And Consumers And Sellers Heterogeneity In Retail Food Markets," Working Papers 201105, Università della Calabria, Dipartimento di Economia, Statistica e Finanza (Ex Dipartimento di Economia e Statistica).
  4. Malakhov, Sergey, 2012. "К Вопросу О Возможности Синтеза Концепции Удовлетворяющего Поиска И Неоклассической Доктрины
    [A note on the synthes
    ," MPRA Paper 49494, University Library of Munich, Germany.
  5. Kevin J. Fox & Iqbal A. Syed, 2014. "Price Discounts and the Measurement of Inflation," Discussion Papers 2014-05, School of Economics, The University of New South Wales.
  6. Francesco Nava & Pasquale Schiraldi, 2013. "Sales and collusion in a market with storage," LSE Research Online Documents on Economics 54249, London School of Economics and Political Science, LSE Library.
  7. Dixon, Huw & Seaton, Jonathan & Waterson, Michael, 2014. "Price Flexibility In British Supermarkets: Moderation And Recession," The Warwick Economics Research Paper Series (TWERPS) 1041, University of Warwick, Department of Economics.
  8. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.
  9. Andrea Pozzi, 2013. "E-commerce as a Stockpiling Technology - Implications for Consumer Savings," EIEF Working Papers Series 1308, Einaudi Institute for Economics and Finance (EIEF), revised Mar 2013.
  10. Thaiyoong Penny Mok & Gillis Maclean & Paul Dalziel, 2011. "Household Size Economies: Malaysian Evidence," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(2), pages 203-223, September.
  11. Anania, Giovanni & Nistico, Rosanna, 2012. "Price dispersion, search costs and consumers and sellers heterogeneity in retail food markets," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 125594, International Association of Agricultural Economists.
  12. Rachel Griffith & Lars Nesheim, 2010. "Estimating households' willingness to pay," CeMMAP working papers CWP24/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  13. Judith A. Chevalier & Anil K Kashyap, 2011. "Best Prices," NBER Working Papers 16680, National Bureau of Economic Research, Inc.

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