Best Prices: Price Discrimination and Consumer Substitution

Judith Chevalier and Anil Kashyap

No 20768, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C43 D11 D12 D4 L81 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
Note: IO ME PR
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Citations: View citations in EconPapers (4)

Published as Judith A. Chevalier & Anil K Kashyap, 2019. "Best Prices: Price Discrimination and Consumer Substitution," American Economic Journal: Economic Policy, vol 11(1), pages 126-159.

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