Micro-responses to shocks: Pricing, promotion, and entry

Alexis Antoniades and Sofronis Clerides

University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics

Abstract: We study the response of markets to a firm-specific shock in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese firms. In Saudi Arabia their market share collapsed from 16.5% in January to less than 1% in March and never fully recovered: it was 6.3% in 2009. By analyzing micro-level (scanner) price and expenditure data we find that (i) Danish firms lowered prices but kept the product mix the same; (ii) non-Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles; and (iii) non-Danish firms chose to introduce products that were identical to the Danish in order to compete head-to-head. The finding that Danish firms adjusted to the negative demand shock through the intensive margin and non-Danish to the positive through the extensive is hard to reconcile with existing pricing theories or theories on multi-product firms. We offer two potential explanations that can help reconcile our findings with existing models.

Keywords: boycotts; multi-product firms; demand shock; Saudi Arabia (search for similar items in EconPapers)
Pages: 30 pages
Date: 2018-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://papers.econ.ucy.ac.cy/RePEc/papers/16-18.pdf (application/pdf)

Related works:
Journal Article: Micro‐responses to shocks: pricing, promotion, and entry (2023)
Working Paper: Micro-responses to shocks: Pricing, promotion, and entry (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucy:cypeua:16-2018

Access Statistics for this paper

More papers in University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics
Bibliographic data for series maintained by ().