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The Kinked Demand Curve and Price Rigidity: Evidence from Scanner Data

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  • Maarten Dossche
  • Freddy Heylen
  • Dirk Van den Poel

Abstract

We estimate the curvature of the demand curve for a wide range of products. We use an extension of Deaton and Muellbauer's Almost Ideal Demand System and scanner data from a large euro area retailer. We find evidence that the overall price elasticity of demand is higher for price increases than for price decreases. However, the overall degree of curvature is one to two orders of magnitude smaller than the value economists usually impose. This suggests that the shape of the demand curve is unlikely to be the only source of real price rigidity. Copyright © The editors of the "Scandinavian Journal of Economics" 2010 .

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9442.2010.01621.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 112 (2010)
Issue (Month): 4 (December)
Pages: 723-752

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Handle: RePEc:bla:scandj:v:112:y:2010:i:4:p:723-752

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Citations

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Cited by:
  1. Christian Hellwig & Ariel Burstein, 2007. "Prices and Market Shares in a Menu Cost Model," 2007 Meeting Papers 327, Society for Economic Dynamics.
  2. Pirschel, Inske & Ahrens, Steffen & Snower, Dennis, 2013. "A Theory of Price Adjustment under Loss Aversion," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79793, Verein für Socialpolitik / German Economic Association.
  3. B. Verhelst & D. Van Den Poel, 2012. "Implicit Contracts and Price Stickiness: Evidence from Customer-Level Scanner Data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/776, Ghent University, Faculty of Economics and Business Administration.
  4. B. Verhelst & D. Van Den Poel, 2012. "Deep Habits in Consumption: A Spatial Panel Analysis Using Scanner Data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/823, Ghent University, Faculty of Economics and Business Administration.
  5. Iñaki Aguirre, 2008. "Output and misallocation effects in monopolistic third-degree price discrimination," Economics Bulletin, AccessEcon, vol. 4(11), pages 1-11.
  6. Michael K. Johnston, 2009. "Real and Nominal Frictions within the Firm: How Lumpy Investment Matters for Price Adjustment," Working Papers 09-36, Bank of Canada.
  7. B. Verhelst & D. Van Den Poel, 2010. "Price rigidity in Europe and the US: A comparative analysis using scanner data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/684, Ghent University, Faculty of Economics and Business Administration.

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