Measuring the Implications of Sales and Consumer Inventory Behavior
Temporary price reductions (sales) are common for many goods and naturally result in large increases in the quantity sold. Demand estimation based on temporary price reductions may mismeasure the long-run responsiveness to prices. In this paper we quantify the extent of the problem and assess its economic implications. We structurally estimate a dynamic model of consumer choice using two years of scanner data on the purchasing behavior of a panel of households. The results suggest that static demand estimates, which neglect dynamics, (i) overestimate own-price elasticities by 30 percent, (ii) underestimate cross-price elasticities by up to a factor of 5, and (iii) overestimate the substitution to the no-purchase or outside option by over 200 percent. This suggests that policy analysis based on static elasticity estimates will underestimate price-cost margins and underpredict the effects of mergers. Copyright The Econometric Society 2006.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 74 (2006)
Issue (Month): 6 (November)
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/
More information through EDIRC
|Order Information:|| Web: https://www.econometricsociety.org/publications/econometrica/access/ordering-back-issues Email: |
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.:
- Jeongwen Chiang, 1991. "A Simultaneous Approach to the Whether, What and How Much to Buy Questions," Marketing Science, INFORMS, vol. 10(4), pages 297-315.
- Tülin Erdem & Susumu Imai & Michael Keane, 2003.
"Brand and Quantity Choice Dynamics Under Price Uncertainty,"
Quantitative Marketing and Economics (QME),
Springer, vol. 1(1), pages 5-64, March.
- Erdem, Tulin & Imai, Susumu & Keane, Michael, 2003. "Brand and Quantity Choice Dynamics Under Price Uncertainty," MPRA Paper 52516, University Library of Munich, Germany.
- Victor Aguirregabiria, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 275-308.
- Boizot, Christine & Robin, Jean-Marc & Visser, Michael, 2001.
"The Demand for Food Products: An Analysis of Interpurchase Times and Purchased Quantities,"
Royal Economic Society, vol. 111(470), pages 391-419, April.
- C, Boizot & Jean-Marc Robin & Michael Visser, 1997. "The Demand for Food Products : An Analysis of Interpurchase Times and Purchased Quantities," Working Papers 97-48, Center for Research in Economics and Statistics.
- Christine Boizot & Jean-Marc Robin & Michael Visser, 2001. "The Demand for Food Products: An Analysis of Interpurchase Times and Purchased Quantities," Post-Print hal-00357760, HAL.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
- Hugo Benitez-Silva & John Rust & Gunter Hitsch & Giorgio Pauletto & George Hall, 2000. "A Comparison Of Discrete And Parametric Methods For Continuous-State Dynamic Programming Problems," Computing in Economics and Finance 2000 24, Society for Computational Economics.
- David R. Bell & Jeongwen Chiang & V. Padmanabhan, 1999. "The Decomposition of Promotional Response: An Empirical Generalization," Marketing Science, INFORMS, vol. 18(4), pages 504-526.
- Aguirregabiria, Victor, 2005.
"Nonparametric identification of behavioral responses to counterfactual policy interventions in dynamic discrete decision processes,"
Elsevier, vol. 87(3), pages 393-398, June.
- Victor Aguirregabiria, 2004. "Nonparametric Identification of Behavioral Responses to Counterfactual Policy Interventions in Dynamic Discrete Decision Processes," Econometrics 0408004, EconWPA.
- Boztuğ, Yasemin & Bell, David R., 2004. "The Effect of Inventory on Purchase Incidence: Empirical Analysis of Opposing Forces of Storage and Consumption," Papers 2004,43, Humboldt University of Berlin, Center for Applied Statistics and Economics (CASE). Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ecm:emetrp:v:74:y:2006:i:6:p:1637-1673. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.