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Product Downsizing and Hidden Price Increases: Evidence from Japan's Deflationary Period

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  • Satoshi Imai
  • Tsutomu Watanabe

Abstract

type="main"> In this paper, we empirically examine the extent to which product downsizing occurred during the deflationary period in Japan, as well as the effects of product downsizing on prices and quantities sold. Using scanner data on prices and quantities for all products sold at about 200 supermarkets over the last 10 years, we find that about one third of product replacements were accompanied by a size/weight reduction. We also find that a 1-percentage point larger size/weight reduction is associated with a 0.45-percentage point larger price decline, resulting in an effective price increase. Finally, we show that the quantities sold decline with product downsizing, and that the responsiveness of the quantity sold to size/weight changes is almost the same as the price elasticity, indicating that consumers are as sensitive to size/weight changes as they are to price changes. Our results suggest that the Japanese consumer price index may be downwardly biased rather than upwardly biased.

Suggested Citation

  • Satoshi Imai & Tsutomu Watanabe, 2014. "Product Downsizing and Hidden Price Increases: Evidence from Japan's Deflationary Period," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 69-89, January.
    • Handle: RePEc:bla:asiapr:v:9:y:2014:i:1:p:69-89
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    File URL: http://hdl.handle.net/10.1111/aepr.12047
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    References listed on IDEAS

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    1. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Papers 2011-03, Bar-Ilan University, Department of Economics.
    2. Satoshi Imai & Chihiro Shimizu & Tsutomu Watanabe, 2012. "How Fast Are Prices in Japan Falling?," CARF F-Series CARF-F-298, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Rotemberg, Julio J., 2005. "Customer anger at price increases, changes in the frequency of price adjustment and monetary policy," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 829-852, May.
    4. Christian Broda & David E. Weinstein, 2007. "Defining Price Stability in Japan: A View from America," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(S1), pages 169-206, December.
    5. Balk,Bert M., 2012. "Price and Quantity Index Numbers," Cambridge Books, Cambridge University Press, number 9781107404960, November.
    6. Kevin J. Fox & Daniel Melser, 2014. "Non-Linear Pricing and Price Indexes: Evidence and Implications from Scanner Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(2), pages 261-278, June.
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    Cited by:

    1. Ioannis Evangelidis, 2024. "Frontiers: Shrinkflation Aversion: When and Why Product Size Decreases Are Seen as More Unfair than Equivalent Price Increases," Marketing Science, INFORMS, vol. 43(2), pages 280-288, March.
    2. Takatoshi Ito & Kazumasa Iwata & Colin McKenzie & Shujiro Urata & Tsutomu Watanabe, 2014. "Japan's Persistent Deflation and Monetary Policy: Editors' Overview," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 1-19, January.
    3. Satoshi Imai & Tsutomu Watanabe, 2015. "Replicating Japan's CPI Using Scanner Data," CARF F-Series CARF-F-364, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    4. In Kyung Kim, 2024. "Consumers' preference for downsizing over package price increases," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(1), pages 25-52, January.
    5. Higo, Masahiro & Shiratsuka, Shigenori, 2023. "Consumer price measurement under the first wave of the COVID-19 spread in Japan: Scanner data evidence for retailers in Tokyo," Japan and the World Economy, Elsevier, vol. 65(C).
    6. Kiyohiko G. Nishimura, 2014. "Comment on “Product Downsizing and Hidden Price Increases: Evidence from Japan's Deflationary Period”," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 92-93, January.
    7. Fructuoso Borrallo Egea & Pedro del Río López, 2021. "Estrategia de política monetaria e inflación en Japón," Occasional Papers 2116, Banco de España.
    8. Nao Sudo & Kozo Ueda & Kota Watanabe, 2014. "Micro Price Dynamics during Japan's Lost Decades," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 44-64, January.
    9. Fructuoso Borrallo Egea & Pedro del Río López, 2021. "Monetary policy strategy and inflation in Japan," Occasional Papers 2116, Banco de España.
    10. Golovacheva, K., 2015. "Consumer response to unit price increase: The role of pricing tactics and consumer knowledge," Working Papers 6421, Graduate School of Management, St. Petersburg State University.
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