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The Kinked Demand Curve and Price Rigidity : Evidence from Scanner Data

Listed author(s):
  • M. DOSSCHE

    ()

  • F. HEYLEN

    ()

  • D. VAN DEN POEL

    ()

This paper uses scanner data from a large euro area retailer. We extend Deaton and Muellbauer’s Almost Ideal Demand System to estimate the price elasticity and curvature of demand for a wide range of products. Our results support the introduction of a kinked (concave) demand curve in general equilibrium macro models. We find that the price elasticity of demand is on average higher for price increases than for price decreases. However, the degree of curvature in demand is much lower than is currently imposed. Moreover, for a significant fraction of products we observe a convex demand curve.

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File URL: http://wps-feb.ugent.be/Papers/wp_06_429.pdf
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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 06/429.

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Length: 42 pages
Date of creation: Dec 2006
Handle: RePEc:rug:rugwps:06/429
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