IDEAS home Printed from https://ideas.repec.org/a/wly/agribz/v30y2014i2p184-194.html
   My bibliography  Save this article

Price Sensitivity Within and Across Retail Formats

Author

Listed:
  • Andreas Widenhorn
  • Klaus Salhofer

Abstract

ABSTRACT Applying a synthetic demand system approach, we examine if consumers in discount stores reveal different price elasticities of demand than those in conventional supermarkets. Based on a RollAMA dataset containing information on consumption in 12 different retail chains in Austria, we first analyze demand patterns for a scenario in which consumers only frequent either discounters or supermarkets, followed by an investigation of potential cross‐format effects when both types of stores are visited. Our empirical findings suggest that for the three categories of milk products under examination, price elasticities in discount stores are generally higher. Beyond that, demand reactions in supermarkets with respect to price changes in discounters differ from the reverse case, i.e., from demand reactions in discounters when supermarket prices are changed. This is especially true for the case of drinking milk, which confirms the strategic potential of drinking milk as a loss leader product.

Suggested Citation

  • Andreas Widenhorn & Klaus Salhofer, 2014. "Price Sensitivity Within and Across Retail Formats," Agribusiness, John Wiley & Sons, Ltd., vol. 30(2), pages 184-194, March.
  • Handle: RePEc:wly:agribz:v:30:y:2014:i:2:p:184-194
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1002/agr.21352
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alessandro Bonanno & Rigoberto A. Lopez, 2007. "Competition Effects of Supermarket Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 555-568.
    2. James Eales & Catherine Durham & Cathy R. Wessells, 1997. "Generalized Models of Japanese Demand for Fish," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1153-1163.
    3. Richard Tiffin & Matthieu Arnoult, 2010. "The demand for a healthy diet: estimating the almost ideal demand system with infrequency of purchase," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 37(4), pages 501-521, December.
    4. David Soberman, 2005. "Questioning Conventional Wisdom About Competition in Differentiated Markets," Quantitative Marketing and Economics (QME), Springer, vol. 3(1), pages 41-70, January.
    5. Thilmany, Dawn D. & Grannis, Jennifer L. & Sparling, Edward, 2001. "Shopping For Meat: Empirical Demand Estimation For Natural Beef Across Store Choices," 2001 Annual Meeting, July 8-11, 2001, Logan, Utah 36157, Western Agricultural Economics Association.
    6. Yuan, Yan & Capps, Oral, Jr. & Nayga, Rodolfo M., Jr., 2009. "Assessing the Demand for a Functional Food Product: Is There Cannibalization in the Orange Juice Category?," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 38(2), pages 1-13, October.
    7. Leibtag, Ephraim S. & Barker, Catherine & Dutko, Paula, 2010. "How Much Lower Are Prices at Discount Stores? An Examination of Retail Food Prices," Economic Research Report 96767, United States Department of Agriculture, Economic Research Service.
    8. Maynard, Leigh J. & Veeramani, Venkat N., 2003. "Price Sensitivities for U.S. Frozen Dairy Products," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(3), pages 1-11, December.
    9. McGuirk, Anya M. & Driscoll, Paul J. & Alwang, Jeffrey Roger & Huang, Huilin, 1995. "System Misspecification Testing And Structural Change In The Demand For Meats," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 20(1), pages 1-21, July.
    10. Bustos-Reyes, César Augusto & González-Benito, Óscar, 2008. "Store and store format loyalty measures based on budget allocation," Journal of Business Research, Elsevier, vol. 61(9), pages 1015-1025, September.
    11. Barten, Anton P, 1993. "Consumer Allocation Models: Choice of Functional Form," Empirical Economics, Springer, vol. 18(1), pages 129-158.
    12. Bouamra-Mechemache, Zohra & Réquillart, Vincent & Soregaroli, Claudio & Trévisiol, Audrey, 2008. "Demand for dairy products in the EU," Food Policy, Elsevier, vol. 33(6), pages 644-656, December.
    13. Ting Zhu & Vishal Singh & Anthony J. Dukes, 2005. "Local Competition and Impact of Entry by a Dominant Retailer," CIE Discussion Papers 2005-05, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    14. Venkatesh Shankar & Ruth N. Bolton, 2004. "An Empirical Analysis of Determinants of Retailer Pricing Strategy," Marketing Science, INFORMS, vol. 23(1), pages 28-49, May.
    15. Vishal P. Singh & Karsten T. Hansen & Robert C. Blattberg, 2006. "Market Entry and Consumer Behavior: An Investigation of a Wal-Mart Supercenter," Marketing Science, INFORMS, vol. 25(5), pages 457-476, September.
    16. Jinghua Xie & Henry W. Kinnucan & Oystein Myrland, 2009. "Demand elasticities for farmed salmon in world trade," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 36(3), pages 425-445, September.
    17. Emek Basker & Michael Noel, 2009. "The Evolving Food Chain: Competitive Effects of Wal‐Mart's Entry into the Supermarket Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 977-1009, December.
    18. Patrice Bertail & France Caillavet, 2008. "Fruit and Vegetable Consumption Patterns: A Segmentation Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(3), pages 827-842.
    19. Kathleen Cleeren & Frank Verboven & Marnik G. Dekimpe & Katrijn Gielens, 2010. "Intra- and Interformat Competition Among Discounters and Supermarkets," Marketing Science, INFORMS, vol. 29(3), pages 456-473, 05-06.
    20. Giancarlo Moschini, 1995. "Units of Measurement and the Stone Index in Demand System Estimation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(1), pages 63-68.
    21. Dhar, Tirtha & Foltz, Jeremy D., 2004. "Milk by Any Other Name... Consumer Benefits from Labeled Milk," Working Papers 201547, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    22. Karsten Hansen & Vishal Singh, 2009. "Market Structure Across Retail Formats," Marketing Science, INFORMS, vol. 28(4), pages 656-673, 07-08.
    23. Okrent, Abigail M. & Alston, Julian M., 2011. "The Demand for Disaggregated Food-Away-from-Home Products," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103625, Agricultural and Applied Economics Association.
    24. Toshinobu Matsuda, 2005. "Differential Demand Systems: A Further Look at Barten's Synthesis," Southern Economic Journal, John Wiley & Sons, vol. 71(3), pages 607-619, January.
    25. Panle Jia, 2008. "What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry," Econometrica, Econometric Society, vol. 76(6), pages 1263-1316, November.
    26. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    27. Tirtha Dhar & Jeremy D. Foltz, 2005. "Milk by Any Other Name … Consumer Benefits from Labeled Milk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 214-228.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shi, Lijia & Gao, Shifeng & House, Lisa A. & Heng, Yan, 2015. "A Multi-Store Auction to Measure Willingness-to-Pay for Organic and Local Blueberries," Journal of Food Distribution Research, Food Distribution Research Society, vol. 46(3), pages 1-10, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Widenhorn, Andreas & Salhofer, Klaus, 2014. "Using a Generalized Differenced Demand Model to Estimate Price and Expenditure Elasticities for Milk and Meat in Austria," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 63(2).
    2. Widenhorn, Andreas & Salhofer, Klaus, 2014. "Using a Generalized Differenced Demand Model to Estimate Price and Expenditure Elasticities for Milk and Meat in Austria," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 63(02), pages 1-16, June.
    3. Yeboah, Godfred & Maynard, Leigh J., 2004. "The Impact Of Bse, Fmd, And U.S. Export Promotion Expenditures On Japanese Meat Demand," 2004 Annual meeting, August 1-4, Denver, CO 19978, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Okrent, Abigail M. & Alston, Julian M., 2011. "Demand for Food in the United States: A Review of Literature, Evaluation of Previous Estimates, and Presentation of New Estimates of Demand," Monographs, University of California, Davis, Giannini Foundation, number 251908, December.
    5. Arabatzis, Garyfallos & Klonaris, Stathis, 2009. "An analysis of Greek wood and wood product imports: Evidence from the linear quadratic aids," Forest Policy and Economics, Elsevier, vol. 11(4), pages 266-270, July.
    6. Maynard, Leigh J. & Saghaian, Sayed H. & Nickoloff, Megan, 2008. "Buyer and Seller Responses to an Adverse Food Safety Event: The Case of Frozen Salmon in Alberta," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 11(1), pages 1-20, February.
    7. Yuan, Yan & Capps, Oral & Nayga, Rodolfo M., 2009. "Assessing the Demand for a Functional Food Product: Is There Cannibalization in the Orange Juice Category?," Agricultural and Resource Economics Review, Cambridge University Press, vol. 38(2), pages 153-165, October.
    8. Minha Hwang & Sungho Park, 2016. "The Impact of Walmart Supercenter Conversion on Consumer Shopping Behavior," Management Science, INFORMS, vol. 62(3), pages 817-828, March.
    9. Lee, Min-Yang A. & Thunberg, Eric M., 2012. "An Inverse Demand System for New England Groundfish: Welfare Analysis of the Transition to Catch Share Management," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 123879, Agricultural and Applied Economics Association.
    10. O. Cem Ozturk & Sriram Venkataraman & Pradeep K. Chintagunta, 2016. "Price Reactions to Rivals’ Local Channel Exits," Marketing Science, INFORMS, vol. 35(4), pages 588-604, July.
    11. Obeng, Efua & Luchs, Ryan & Inman, J. Jeffrey & Hulland, John, 2016. "Survival of The Fittest: How Competitive Service Overlap and Retail Format Impact Incumbents’ Vulnerability to New Entrants," Journal of Retailing, Elsevier, vol. 92(4), pages 383-396.
    12. Maynard, Leigh J. & Liu, Deyu, 1999. "Fragility In Dairy Product Demand Analysis," 1999 Annual meeting, August 8-11, Nashville, TN 21679, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Zheng, Yuqing & Kaiser, Harry M., 2008. "Advertising and U.S. Nonalcoholic Beverage Demand," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(2), pages 1-13.
    14. Anders, Sven M. & Moeser, Anke, 2008. "Using Retail Scanner Data to Assess the Demand for Value-based Ground Meat Products in Canada," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44154, European Association of Agricultural Economists.
    15. Astrid Jonas & Jutta Roosen, 2008. "Demand for milk labels in Germany: organic milk, conventional brands, and retail labels," Agribusiness, John Wiley & Sons, Ltd., vol. 24(2), pages 192-206.
    16. Basker, Emek, 2011. "The Causes and Consequences of Wal-Mart’s Growth," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 110-134.
    17. Grewal, Dhruv & Janakiraman, Ramkumar & Kalyanam, Kirthi & Kannan, P.K. & Ratchford, Brian & Song, Reo & Tolerico, Stephen, 2010. "Strategic Online and Offline Retail Pricing: A Review and Research Agenda," Journal of Interactive Marketing, Elsevier, vol. 24(2), pages 138-154.
    18. Caillavet, France & Fadhuile, Adelaide & Nichèle, Véronique, 2014. "Taxing animal foods for sustainability: environmental, nutritional and social perspectives in France," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182863, European Association of Agricultural Economists.
    19. Kasteridis, Panagiotis & Yen, Steven, 2012. "U.S. demand for organic and conventional vegetables: a Bayesian censored system approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 56(3), pages 1-21.
    20. Kathleen Cleeren & Frank Verboven & Marnik G. Dekimpe & Katrijn Gielens, 2010. "Intra- and Interformat Competition Among Discounters and Supermarkets," Marketing Science, INFORMS, vol. 29(3), pages 456-473, 05-06.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:agribz:v:30:y:2014:i:2:p:184-194. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.