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An Empirical Test of the Theory of Sales: Do Household Storage Costs Affect Consumer and Store Behavior?

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Author Info
David R. Bell ()
Christian A.L. Hilber ()

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Abstract

We revisit and test Salop and Stiglitz (1982) Theory of Sales. Equilibrium predictions are that higher consumer storage costs lead to: (1) higher average prices, (2) fewer promotions, and (3) shallower promotions. Empirical estimates of storage cost are developed for approximately 1,000 households using the American Housing Survey (1989), United States Census (1990), and Stanford Market Basket Database (19911993). A test of the key assumption finds consumers with higher storage costs shop more often and purchase smaller quantities per visit; moreover, all three equilibrium predictions are supported. The estimated quantitative effects on shopping frequency and prices are economically important.

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Publisher Info
Paper provided by Utrecht School of Economics in its series Working Papers with number 05-23.

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Length: 39 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:use:tkiwps:0523

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Related research
Keywords: Consumer Behavior; Retail Prices; Price Promotion; Storage Costs.;

Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D40 - Microeconomics - - Market Structure and Pricing - - - General
M3 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Saul Lach, 2002. "Existence And Persistence Of Price Dispersion: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 433-444, August. [Downloadable!] (restricted)
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  2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  3. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September. [Downloadable!] (restricted)
  4. Alba, Joseph W, et al, 1994. " The Influence of Prior Beliefs, Frequency Cues, and Magnitude Cues on Consumers' Perceptions of Comparative Price Data," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 21(2), pages 219-35, September.
  5. Edward L. Glaeser & Joseph Gyourko, 2001. "Urban Decline and Durable Housing," NBER Working Papers 8598, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Iga Hendel & Aviv Nevo, 2002. "Sales and Consumer Inventory," Microeconomics 0201001, EconWPA. [Downloadable!]
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  7. 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. [Downloadable!] (restricted)
  8. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July. [Downloadable!] (restricted)
  9. Krishnamurthi, Lakshman & Mazumdar, Tridib & Raj, S P, 1992. " Asymmetric Response to Price in Consumer Brand Choice and Purchase Quantity Decisions," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 19(3), pages 387-400, December.
  10. 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. [Downloadable!] (restricted)
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