Sales and Consumer Inventory
Temporary price reductions (sales) are quite common for many goods and usually result in an increase in the quantity sold. We explore whether the data support the hypothesis that these increases are, at least partly, due to dynamic consumer behavior: at low prices consumers stockpile for future consumption. This effect, if present, has broad implications for interpretation of demand estimates. We construct a dynamic model of consumer choice and use it to derive testable predictions. We test the implications of the model using two years of store-level scanner data and data on the purchases of a panel of households over the same time. The results support the existence of household stockpiling behavior.
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