Working Paper: NBER ID: w9048
Authors: Igal Hendel; Aviv Nevo
Abstract: 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.
Keywords: No keywords provided
JEL Codes: L0; L4; D1; D4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Temporary price reductions (D49) | Significant increases in the quantity sold (D49) |
| Prior sales (L14) | Current purchasing behavior (D12) |
| Stockpiling behavior (D15) | Demand estimates (C51) |
| Duration since last sale (C41) | Quantity purchased (C69) |