Measuring the Implications of Sales and Consumer Inventory Behavior

Igal Hendel and Aviv Nevo

No 11307, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: G0 (search for similar items in EconPapers)
Date: 2005-05
Note: IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Igal Hendel & Aviv Nevo, 2006. "Measuring the Implications of Sales and Consumer Inventory Behavior," Econometrica, Econometric Society, vol. 74(6), pages 1637-1673, November.

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Journal Article: Measuring the Implications of Sales and Consumer Inventory Behavior (2006)
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