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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. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October.
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  9. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
  10. João L. Assunção & Robert J. Meyer, 1993. "The Rational Effect of Price Promotions on Sales and Consumption," Management Science, INFORMS, vol. 39(5), pages 517-535, May.
  11. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  12. Saul Lach, 2002. "Existence and Persistence of Price Dispersion: an Empirical Analysis," NBER Working Papers 8737, National Bureau of Economic Research, Inc.
  13. 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.
  14. 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.
  15. Salop, S & Stiglitz, J E, 1982. "The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents," American Economic Review, American Economic Association, vol. 72(5), pages 1121-30, December.
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Cited by:
  1. Paul Cheshire & Christian A. L. Hilber & Ioannis Kaplanis, 2013. "Land Use Regulation and Productivity - Land Matters: Evidence from a UK Supermarket Chain," SERC Discussion Papers 0138, Spatial Economics Research Centre, LSE.
  2. Stephan Seiler, 2010. "The impact of search costs on consumer behavior: a dynamic approach," 2010 Meeting Papers 559, Society for Economic Dynamics.
  3. 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.

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