The behavioural economics of neutral and upward sloping demand curves in retailing

Abstract

Prior research on pricing in behavioural economics in closed settings has traditionally delivered positive decelerating demand curves. In consumer behaviour analysis, the effects of price on consumer choice has been analysed with both panel data and in-store experiments. These studies have not only found downward sloping demand curves, but also neutral and upward sloping curves. The purpose of the current research was to try to detect these kinds of neutral or upward sloping demand curves in retailing and analyse the effects of in-store price manipulations on sales to try to scrutinise these anomalies further. The effects of the price interventions were inferred by scanner data from convenience stores, supermarkets and discount stores. The stores belonged to Icelandic and Norwegian retailers. Despite rather intensive price variations, the results confirm either a steady state or even a subtle upward sloping demand curve for all product categories tested. In line with the behavioural perspective model of consumer choice, the findings support a distinction between closed and open settings regarding the effects of price on consumption. The current research shows that the neutral or upward sloping demand curves cannot be attributed to the level of analysis, product or brand selection, type of store, methodological differences or to the data analysis. This behavioural phenomenon in open settings is necessary to study further. This is particularly important for retail executives as it is crucial to know which brand and category sales are inelastic or even upward sloping.