Price Sensitivity Within and Across Retail Formats

ABSTRACT Applying a synthetic demand system approach, we examine if consumers in discount stores reveal different price elasticities of demand than those in conventional supermarkets. Based on a RollAMA dataset containing information on consumption in 12 different retail chains in Austria, we first analyze demand patterns for a scenario in which consumers only frequent either discounters or supermarkets, followed by an investigation of potential cross‐format effects when both types of stores are visited. Our empirical findings suggest that for the three categories of milk products under examination, price elasticities in discount stores are generally higher. Beyond that, demand reactions in supermarkets with respect to price changes in discounters differ from the reverse case, i.e., from demand reactions in discounters when supermarket prices are changed. This is especially true for the case of drinking milk, which confirms the strategic potential of drinking milk as a loss leader product.