Working Paper: CEPR ID: DP13281
Authors: Alexis Antoniades; Sofronis Clerides; Mingzhi Xu
Abstract: We study the market response to firm-specific demand shocks in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese products firms. In Saudi Arabia their market share collapsed from 16.5% in January to below 1% in March and never fully recovered: by 2009 it was 6.3%. By analyzing micro-level (scanner) price and sales data, we find that: (i)Danish firms lowered prices but kept the product mix the same; (ii) non-Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles; and (iii) non-Danish firms chose to introduce products that were similar to the Danish in characteristic space in order to compete head-to-head. We complement the analysis with a theoretical framework that helps to account for our main findings.
Keywords: boycotts; multiproduct firms; demand shock; Saudi Arabia
JEL Codes: E30; L10; L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Danish firms lowered their prices in response to the boycott (L11) | price adjustments by Danish firms (L11) |
| non-Danish firms maintained stable prices but altered their product mix (L11) | product mix changes by non-Danish firms (F29) |
| boycott (D74) | market dynamics (D49) |
| price adjustments by Danish firms (L11) | market dynamics (D49) |
| product mix changes by non-Danish firms (F29) | market dynamics (D49) |