Working Paper: NBER ID: w20768
Authors: Judith A. Chevalier; Anil K. Kashyap
Abstract: We propose a method for aggregating prices when retailers use periodic sales to price-discriminate amongst heterogeneous customers. To do so, we introduce a model in which Loyal customers buy one brand and do not strategically time purchases, while Bargain Hunters always pay the lowest price available, the “best price”. We derive the exact price index and demonstrate empirically that accounting for our best price construct substantially improves the match between conventional price aggregation strategies and actual prices paid by consumers. We demonstrate that our methodology improves inflation measurement without imposing an unrealistically large burden on the data-collection agency.
Keywords: Price Discrimination; Consumer Behavior; Inflation Measurement
JEL Codes: C43; D11; D12; D4; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| temporary discounts (L42) | lower prices paid by consumers (P22) |
| temporary discounts (L42) | significant increase in quantity sold (D49) |
| method of price aggregation (C43) | accuracy of inflation measurements (E31) |
| existing BLS-style price aggregates (E30) | migration of consumers toward the best price (D41) |
| best price (D41) | consumer purchasing behavior (D19) |