Working Paper: NBER ID: w11572
Authors: Aviv Nevo; Konstantinos Hatzitaskos
Abstract: For many products the average price paid by consumers falls during periods of high demand. We use information from a large supermarket chain to decompose the decrease in the average price into a substitution effect, due to an increase in the share of cheaper products, and a price reduction effect. We find that for almost all the products we study the substitution effect explains a large part of the decrease. We estimate demand for these products and show the price declines are consistent with a change in demand elasticity and the relative demand for different brands. Our findings are less consistent with "loss-leader" models of retail competition.
Keywords: retail pricing; demand elasticity; substitution effects; seasonal demand
JEL Codes: D12; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Substitution effect (D11) | Decrease in average price of tuna (D41) |
| Decrease in average price of tuna (D41) | Change in price index (C43) |
| Increased demand for brands (D12) | No price decrease for those brands (D49) |
| High demand during Lent (Z12) | Increased price sensitivity (D49) |
| Demand elasticity (D12) | Price sensitivity (D40) |