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Title:Why does the average price paid fall during high demand periods? PDF Logo
Authors:Nevo, Aviv
Hatzitaskos, Konstantinos
Issue Date:2006
Series/Report no.:CSIO working paper 0086
Abstract:For many products the average price paid by consumers falls during periods of high demand. We use information from a large supermarket chain to decompose the decrease in the average price into a substitution effect, due to an increase in the share of cheaper products, and a price reduction effect. We find that for almost all the products we study the substitution effect explains a large part of the decrease. We estimate demand for these products and show the price declines are consistent with a change in demand elasticity and the relative demand for different brands. Our findings suggest, that for the data we examine, loss-leader models of retail competition are not the main explanation for price declines.
Document Type:Working Paper
Appears in Collections:CSIO Electronic Working Papers, Northwestern University

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