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Nevo, Aviv
Hatzitaskos, Konstantinos
Year of Publication: 
Series/Report no.: 
CSIO working paper 0086
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

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