Retail promotion with price cut and the imperfect price responses of orange juice demand in the U.S

Hyeyoung Kim, Marisa Zansler and Lisa House

Agribusiness, 2018, vol. 34, issue 2, 363-376

Abstract: The purpose of this study is to investigate imperfect price reversibility and measure price sensitivity incorporated with the effect of trade promotions for refrigerated 100% orange juice (OJ). Using a price decomposition method with distributed lags, we test imperfect reversibility and asymmetric price responses. Empirical models consisted of prices coupled with promotions and prices decoupled from promotions to determine the effect of trade promotions on retail prices. The results showed that the demand for OJ was imperfectly price reversible when we used prices coupled with promotion, and asymmetric price responses were found in not from concentrated OJ demand. Prices coupled with promotions were more elastic than prices decoupled from promotions. The demand for OJ was influenced by both current and previous information. Dynamic adjustments toward price and promotions may result in irreversibility. Competitions with price reduction increase sales in the short run, but frequent promotions may lead to lower reference prices that eventually weaken consumer willingness to purchase at regular prices without promotions. [EconLit citations: C32, Q11, Q13].

Date: 2018
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https://doi.org/10.1002/agr.21523

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Persistent link: https://EconPapers.repec.org/RePEc:wly:agribz:v:34:y:2018:i:2:p:363-376

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