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Sales and Consumer Inventory

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  • Igal Hendel
  • Aviv Nevo

Abstract

Temporary price reductions (sales) are common for many goods and naturally result in large 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, renders standard static demand estimates misleading, which has broad economic implications. We construct a dynamic model of consumer choice, use it to derive testable predictions and test these predictions using two years of scanner data on the purchasing behavior of a panel of households. The results support the existence of household stockpiling behavior and suggest that static demand estimates, which neglect dynamics, may overestimate price sensitiveness by up to a factor of 2 to 6.

Suggested Citation

  • Igal Hendel & Aviv Nevo, 2002. "Sales and Consumer Inventory," NBER Working Papers 9048, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9048
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L0 - Industrial Organization - - General
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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