Sales and Consumer Inventory
AbstractTemporary price reductions (sales) are common for many goods and naturally result in large increase in the quantity sold. We explore whether the data support the hypothesis that these increases are, at least partly, due to dynamic consumer behavior: at low prices consumers stockpile for future consumption. This effect, if present, renders standard static demand estimates misleading, which has broad economic implications. We construct a dynamic model of consumer choice, use it to derive testable predictions and test these predictions using two years of scanner data on the purchasing behavior of a panel of households. The results support the existence of household stockpiling behavior and suggest that static demand estimates, which neglect dynamics, may overestimate price sensitiveness by up to a factor of 2 to 6.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9048.
Date of creation: Jul 2002
Date of revision:
Publication status: published as Igal Hendel & Aviv Nevo, 2006. "Sales and Consumer Inventory," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 543-561, Autumn.
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Other versions of this item:
- Hendel, Igal & Nevo, Aviv, 2001. "Sales and Consumer Inventory," Department of Economics, Working Paper Series qt11x3d68b, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Hendel, Igal & Nevo, Aviv, 2001. "Sales and Consumer Inventory," Competition Policy Center, Working Paper Series qt0p18h2d8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- Iga Hendel and Aviv Nevo., 2001. "Sales and Consumer Inventory," Economics Working Papers E01-307, University of California at Berkeley.
- Iga Hendel & Aviv Nevo, 2002. "Sales and Consumer Inventory," Microeconomics 0201001, EconWPA.
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