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The Kinked Demand Curve and Price Rigidity : Evidence from Scanner Data

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  • M. DOSSCHE

    ()

  • F. HEYLEN

    ()

  • D. VAN DEN POEL

    ()

Abstract

This paper uses scanner data from a large euro area retailer. We extend Deaton and Muellbauer’s Almost Ideal Demand System to estimate the price elasticity and curvature of demand for a wide range of products. Our results support the introduction of a kinked (concave) demand curve in general equilibrium macro models. We find that the price elasticity of demand is on average higher for price increases than for price decreases. However, the degree of curvature in demand is much lower than is currently imposed. Moreover, for a significant fraction of products we observe a convex demand curve.

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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 06/429.

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Length: 42 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:rug:rugwps:06/429

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Keywords: price setting; real rigidity; kinked demand curve; behavioral AIDS;

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Cited by:
  1. Steffen Ahrens & Inske Pirschel & Dennis Snower, 2014. "A Theory of Price Adjustment under Loss Aversion," CESifo Working Paper Series 4789, CESifo Group Munich.
  2. Michael K. Johnston, 2009. "Real and Nominal Frictions within the Firm: How Lumpy Investment Matters for Price Adjustment," Working Papers 09-36, Bank of Canada.
  3. B. Verhelst & D. Van Den Poel, 2010. "Price rigidity in Europe and the US: A comparative analysis using scanner data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/684, Ghent University, Faculty of Economics and Business Administration.
  4. Iñaki Aguirre, 2008. "Output and misallocation effects in monopolistic third-degree price discrimination," Economics Bulletin, AccessEcon, vol. 4(11), pages 1-11.
  5. B. Verhelst & D. Van Den Poel, 2012. "Implicit Contracts and Price Stickiness: Evidence from Customer-Level Scanner Data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/776, Ghent University, Faculty of Economics and Business Administration.
  6. Christian Hellwig & Ariel Burstein, 2007. "Prices and Market Shares in a Menu Cost Model," 2007 Meeting Papers 327, Society for Economic Dynamics.
  7. B. Verhelst & D. Van Den Poel, 2012. "Deep Habits in Consumption: A Spatial Panel Analysis Using Scanner Data," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/823, Ghent University, Faculty of Economics and Business Administration.

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