Does Price Elasticity Vary with Economic Growth? A Cross-Category Analysis.

• Autores: BRETT R. GORDON, Avi Goldfarb, Li Yang
• Localización: Journal of marketing research, ISSN 0022-2437, Vol. 50, Nº 1, 2013, págs. 4-23
• Idioma: inglés
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• Resumen

  • 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.