Measuring the Implications of Sales and Consumer Inventory Behavior / Igal Hendel, Aviv Nevo.

Format:

Book

Author/Creator:

Hendel, Igal.

Contributor:

National Bureau of Economic Research.

Nevo, Aviv.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11307.

NBER working paper series no. w11307

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

Temporary price reductions (sales) are common for many goods and naturally result in large increases in the quantity sold. Demand estimation based on temporary price reductions may mis-measure the long run responsiveness to prices. In this paper we quantify the extent of the problem and assess its economic implications. We structurally estimate a dynamic model of consumer choice using two years of scanner data on the purchasing behavior of a panel of households. The results suggest that static demand estimates, which neglect dynamics: (i) overestimate own price elasticities by 30 percent; (ii) underestimate cross-price elasticities to other products by up to a factor of 5; and (iii) overestimate the substitution to the no purchase, or outside option, by over 200 percent.

Notes:

Print version record

May 2005.