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Why Do Hot Dogs Come in Packs of 10 and Buns in 8s or 12s? A Demand-Side Investigation

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  • Gerstner, Eitan
  • Hess, James D
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    Abstract

    This paper presents a theory that yields insight into the determination of package prices and sizes. Consumer heterogeneity in consumption rates, storage costs, and transactions costs (costs of making trips to the store) explains differences in package sizes and unit prices. In the model, fully-informed consumers and a monopolist seller pursue optimizing behavior. The seller chooses package sizes and prices to maximize profits, and the consumers select package sizes that maximize their utilities. The authors show that consumer heterogeneity may induce the seller to offer more than one size and that larger sizes would be sold either at unit-price discounts or unit-price premiums. Welfare implications and empirical tests of the theory are presented. Copyright 1987 by the University of Chicago.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 60 (1987)
    Issue (Month): 4 (October)
    Pages: 491-517

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    Handle: RePEc:ucp:jnlbus:v:60:y:1987:i:4:p:491-517

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Agrawal, Jagdish & Grimm, Pamela E. & Srinivasan, Narasimhan, 1994. "Quantity Surcharges on Groceries," Research Reports 25179, University of Connecticut, Food Marketing Policy Center.
    2. Kokovin, Sergey & Nahata, Babu & Zhelobodko, Evgeny, 2008. "Why quantity premia are rare?," Economics Letters, Elsevier, vol. 100(1), pages 153-156, July.
    3. Cohen, Andrew, 2008. "Package size and price discrimination in the paper towel market," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 502-516, March.
    4. Kokovin Sergey & Zhelobodko Evgeniy, 2008. "Diagnosing Efficiency of Distortion in Discrete Screening," EERC Working Paper Series 08/02e, EERC Research Network, Russia and CIS.
    5. Kenneth W. Clements, 2004. "Pricing and Packaging: The Case of Marijuana," Economics Discussion / Working Papers 04-03, The University of Western Australia, Department of Economics.

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