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- Title
Does Price Elasticity Vary with Economic Growth? A Cross-Category Analysis.
- Authors
GORDON, BRETT R.; GOLDFARB, AVI; YANG LI
- Abstract
How does price sensitivity change with the macroeconomic environment? The authors explore this question by measuring price elasticity using household-level data across 19 grocery categories over 24 quarters. For each category, they estimate a separate random coefficients logit model with quarter-specific price response parameters and control functions to address endogeneity. This specification yields a novel set of 456 elasticities across categories and time that are generated using the same method and therefore can be directly compared. On average, price sensitivity is countercyclical: It rises when the macroeconomy weakens. However, substantial variation exists, and a handful of categories exhibit procyclical price sensitivity. The authors show that the relationship between price sensitivity and macroeconomic growth correlates strongly with the average level of price sensitivity in a category. They examine several explanations for this result and conclude that a category's share of wallet is the more likely driver versus alternative explanations based on product perishability, substitution across consumption channels, or market power.
- Subjects
ELASTICITY (Economics); PRICE sensitivity; GROCERY shopping; PRICES; MARKETING research; MACROECONOMICS; MATHEMATICAL models; ECONOMICS
- Publication
Journal of Marketing Research (JMR), 2013, Vol 50, Issue 1, p4
- ISSN
0022-2437
- Publication type
Article
- DOI
10.1509/jmr.11.0162