An Empirical Test of the Theory of Sales: Do Household Storage Costs Affect Consumer and Store Behavior?
AbstractWe 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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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 05-23.
Length: 39 pages
Date of creation: Aug 2004
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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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-29 (All new papers)
- NEP-COM-2005-10-29 (Industrial Competition)
- NEP-MKT-2005-10-29 (Marketing)
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