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Sales and Consumer Inventory

Listed author(s):
  • Iga Hendel and Aviv Nevo.

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.

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Paper provided by University of California at Berkeley in its series Economics Working Papers with number E01-307.

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Date of creation: 01 Sep 2001
Handle: RePEc:ucb:calbwp:e01-307
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University of California at Berkeley, Berkeley, CA USA

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Web page: http://www.haas.berkeley.edu/groups/iber/wps/econwp.html
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  1. 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.
  2. 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.
  3. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2003. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," American Economic Review, American Economic Association, vol. 93(1), pages 15-37, March.
  4. 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.
  5. Robert C. Blattberg & Richard Briesch & Edward J. Fox, 1995. "How Promotions Work," Marketing Science, INFORMS, vol. 14(3_supplem), pages 122-132.
  6. John Conlisk & Eitan Gerstner & Joel Sobel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, Oxford University Press, vol. 99(3), pages 489-505.
  7. 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.
  8. 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.
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