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An empirical test of the Theory of Sales: Do household storage constraints affect consumer and store behavior?

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  • David Bell

    ()

  • Christian Hilber

    ()

Abstract

We revisit and test Salop and Stiglitz (1982) Theory of Sales. Equilibrium comparative static predictions are that greater consumer storage constraints lead to: (1) higher average prices, (2) fewer promotions, and (3) shallower promotions. In equilibrium, price dispersion is nonlinear in storage constraints, first increasing then decreasing. Empirical estimates of storage constraints are developed for approximately 1,000 households using the American Housing Survey (1989), United States Census (1990), and Stanford Market Basket Database (1991–1993). We find consumers with greater storage constraints shop more often and purchase smaller quantities per visit; moreover, the comparative static predictions are supported and evidence consistent with the equilibrium dispersion prediction is observed. Estimated quantitative effects are economically important. Copyright Springer Science + Business Media, LLC 2006

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Bibliographic Info

Article provided by Springer in its journal Quantitative Marketing and Economics.

Volume (Year): 4 (2006)
Issue (Month): 2 (June)
Pages: 87-117

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Handle: RePEc:kap:qmktec:v:4:y:2006:i:2:p:87-117

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Web page: http://www.springerlink.com/link.asp?id=111240

Related research

Keywords: Consumer behavior; Housing constraints; Price promotion; Retail prices; Storage;

References

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  1. Saul Lach, 2002. "Existence And Persistence Of Price Dispersion: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 433-444, August.
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  10. David R. Bell & Jeongwen Chiang & V. Padmanabhan, 1999. "The Decomposition of Promotional Response: An Empirical Generalization," Marketing Science, INFORMS, vol. 18(4), pages 504-526.
  11. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
  12. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  13. Edward L. Glaeser & Joseph Gyourko, . "The Impact of Zoning on Housing Affordability," Zell/Lurie Center Working Papers 395, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  14. Jagmohan S. Raju & V. Srinivasan & Rajiv Lal, 1990. "The Effects of Brand Loyalty on Competitive Price Promotional Strategies," Management Science, INFORMS, vol. 36(3), pages 276-304, March.
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Cited by:
  1. 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.
  2. Stephan Seiler, 2010. "The impact of search costs on consumer behavior: a dynamic approach," 2010 Meeting Papers 559, Society for Economic Dynamics.
  3. Cheshire, Paul C. & Hilber, Christian & Kaplanis, Ioannis, 2012. "Land use regulation and productivity - Land matters: Evidence from a UK Supermarket chain," Working Papers 2072/196650, Universitat Rovira i Virgili, Department of Economics.

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