Differences In Price Elasticities Research Articles

Optimal Early-Bird Discounts and the Challenges of Diversion

Variable pricing and early-bird discounts can shift some demand or the time of purchase from higher-priced periods to lower-priced periods without increasing the total demand. This diversion effect influences optimal price levels, and the present paper presents a model for calculating optimal early-bird discounts when incorporating diversion. The model also reveals the differences in price elasticities and the feasible price interval for positive profit. The paper contributes to the literature on early-bird pricing strategies and offers practical insights for service providers seeking to optimize their pricing strategies. The empirical relevance is documented using survey and real-life experimental data among skiers at a major ski resort in Norway. The main insights of the paper are that the profit-maximizing discounts and the gap between the optimal price with and without diversion increase with the length of the pre-booking period.

Price elasticity estimation for deep learning-based choice models: an application to air itinerary choices

One of the most popular approaches to model choices in the airline industry is the multinomial logit (MNL) model and its variations because it has key properties for businesses: acceptable accuracy and high interpretability. On the other hand, recent research has proven the interest of considering choice models based on deep neural networks as these provide better out-of-sample predictive power. However, these models typically lack direct business interpretability. One useful way to get insights for consumer behavior is by estimating and studying the price elasticity in different choice situations. In this research, we present a new methodology to estimate price elasticity from Deep Learning-based choice models. The approach leverages the automatic differentiation capabilities of deep learning libraries. We test our approach on data extracted from a global distribution system (GDS) on European market data. The results show clear differences in price elasticity between leisure and business trips. Overall, the demand for trips is price elastic for leisure and inelastic for the business segment. Moreover, the approach is flexible enough to study elasticity on different dimensions, showing that the demand for business trips could become highly elastic in some contexts like departures during weekends, international destinations, or when the reservation is done with enough anticipation. All these insights are of a particular interest for travel providers (e.g., airlines) to better adapt their offer, not only to the segment but also to the context.

Food Price Elasticity by Status of Participation in Federal Food Assistance Programs: A Laboratory-Based Grocery Store Study

ABSTRACT Background Federal food assistance programs target low-income and nutritionally vulnerable Americans, with the dual goals of reducing food insecurity and improving diet quality. Individuals on limited food budgets may face constraints on their ability to purchase healthy foods when their prices increase, which could mitigate the intended impact of federal feeding programs. To better understand the effect of food price changes on healthy food purchases, we focus on eggs, which are rich in many important nutrients and can be a healthy part of a wide range of cultural food menus. Objective We use a laboratory-based grocery store experiment (n = 80) to examine the difference in price elasticity of eggs between individuals participating in food assistance programs and those not participating in these programs. This trial was registered at clinicaltrials.gov as NCT03296878. Methods Subjects completed several food purchasing trials, as well as questionnaires that assessed demographic, psychosocial, and other factors. Mixed linear regression models were used to assess the relationship between food price changes and food purchases (price elasticity). Results No difference in price elasticity was observed between groups, but subjects in both groups decreased their egg purchases by 6.9–8.6% for every 10% increase in egg price. For every 10% increase in the price of all nonegg foods, egg purchases increased by 3.3% among federal food assistance program participants but not nonparticipants, and purchases for foods such as lean meats, low-fat dairy, fruits, vegetables, and whole grains decreased by up to 14% among both groups. Conclusions Efforts to emphasize healthy eating strategies for individuals on limited budgets will be especially important during times of food price increases. Additional research is needed to estimate the price elasticities of other food groups among individuals participating in federal food assistance programs.

Hand-to-Mouth Consumption and Calorie Consciousness: Consequences for Junk-Food Taxation

Junk-food taxes have had mixed effects on obesity and junk-food consumption. We build a theoretical model to explain those empirical results and better understand how to address the obesity crisis. In our framework, hand-to-mouth consumer's make an intertemporal choice between food consumption and weight loss. Their choice depends on calorie consciousness, which is determined by relative prices and educational attainment. Thus, a junk-food tax modifies consumer's intertemporal choices both through their budget constraint and calorie consciousness. As a result, the effect of the tax on overweight reflects competing income, intertemporal substitution, and calorie consciousness effects. The model explains empirical observations such as the recent rise in obesity and differences in weight outcomes for different income levels. The model explains circumstances under which junk-food taxes can be effective or ineffective to reduce overweight, as well as differences in price-elasticities of high-calorie food consumption for high and low income earners.

A Laboratory-based Grocery Store Study to Evaluate Food Price Elasticity by Status of Participation in Federal Food Assistance Programs (FS02-02-19)

ObjectivesFederal food assistance programs target low-income and nutritionally-vulnerable Americans, with the dual goals of reducing food insecurity and improving diet quality. Individuals on limited food budgets may face constraints on their ability to purchase healthy foods when their prices increase, which could mitigate the intended impact of federal feeding programs. To better understand the effect of food price changes on healthy food purchases, we use a laboratory-based grocery store experiment to estimate the own- and cross-price elasticity of foods among individuals participating in federal food assistance programs (participants) and those not participating in these programs (non-participants). We focus on eggs, which are rich in many important nutrients and can be a healthy part of a wide range of cultural food menus. MethodsParticipants (n = 40) and non-participants (n = 40) were recruited to participate in this study. Subjects were assigned a food budget based on the USDA Thrifty Food Plan, and were asked to purchase enough food for their families for a one week period using our laboratory-based grocery store. Questionnaires and body measurements were used to collect information on demographic characteristics, psychosocial factors, and body mass index. Mixed linear regression models were used to assess the relationship between food price changes and food purchases (price elasticity). ResultsSubjects in both groups decreased their egg purchases by 6.9–8.6% for every 10% increase in egg price, although no difference in price elasticity was observed between groups. For every 10% increase in the price of all non-egg foods, egg purchases increased by 3.3% among participants but not non-participants, and purchases for foods such as lean meats, low-fat dairy, fruits, vegetables, and whole grains decreased by up to 14% among both groups. ConclusionsSubjects in both groups purchased fewer eggs when their price increased. When the price of non-egg foods increased, participants moderately increased their purchase of eggs, and subjects in both groups drastically decreased their purchase of many healthy foods. Efforts to emphasize healthy eating strategies on limited budgets will be especially important during times of food price increases. Funding SourcesThis research was funded by the Egg Nutrition Center/American Egg Board and USDA-ARS.

Do differences in reported expenditures between household scanner data and expenditure surveys matter in health policy research?

Household scanner data are increasingly used to inform health policy such as sugar-sweetened beverage taxes. This article examines whether differences in the level of reported expenditures between IRI Consumer Network scanner panel and the Consumer Expenditure Survey (CES) lead to important differences in demand elasticities and policy simulation outcomes. Using each dataset, we estimated a structural consumer demand system with seven food groups and a numéraire good. To compare the two datasets on a level playing field, we went to great lengths to ensure that the explanatory variables in the two demand models were comparably constructed. Results indicate that scanner data households are not consistently more price responsive than the general population and underreported Consumer Network expenditures do not seem to result in systematic differences in price elasticities. The income elasticities are uniformly lower in Consumer Network than in CES for higher income households because of the positive association between income and the degree of underreporting. This, however, has limited effects on uncompensated price elasticities and policy simulations because food budget shares are small for higher income households. Overall, these findings support continued use of household scanner data in health policy research related to effects of price (dis)incentives.

Behavioral Price Discrimination in the Presence of Switching Costs

We study the strategic impacts of behavioral price discrimination (BPD) on manufacturers and retailers in a distribution channel when there are switching costs in consumer demand. Unlike previous empirical studies of behavioral price discrimination, which rely only on differences in price elasticity across customers, our pricing model allows the firm strategies to additionally account for differences in price elasticity across time (due to switching costs). We estimate a dynamic pricing model using empirical data from the cola category and, through a series of counterfactuals, we find that the retailer should simply outsource the data analytics and customization of coupons to manufacturers and improve its profit beyond what it can achieve by proactively couponing on its own. We further find that serving as an information broker to sell its customer database to manufacturers can be a vital source of profit to the retailer. By contrast, manufacturers end up worse off, illustrating that customer information is a potent source of channel power to the retailer. Finally, we show that simply using customers’ most recent purchase information can significantly impact firms’ profits. BPD based on this information is easy to implement and of low cost to manufacturers and retailers. Data are available at https://doi.org/10.1287/mksc.2016.1024 .

Differential Responses to Food Price Changes by Personal Characteristic: A Systematic Review of Experimental Studies.

BackgroundFiscal interventions to improve population diet have been recommended for consideration by many organisations including the World Health Organisation and the United Nations and policies such as sugar-sweetened beverage taxes have been implemented at national and sub-national levels. However, concerns have been raised with respect to the differential impact of fiscal interventions on population sub-groups and this remains a barrier to implementation.ObjectiveTo examine how personal characteristics (such as socioeconomic status, sex, impulsivity, and income) moderate changes in purchases of targeted foods in response to food and beverage price changes in experimental settings.DesignSystematic reviewData SourcesOnline databases (PubMed, EMBASE, Web of Science, EconLit and PsycInfo), reference lists of previous reviews, and additional data from study authors.Study SelectionWe included randomised controlled trials where food and beverage prices were manipulated and reported differential effects of the intervention on participant sub-groups defined according to personal characteristics.Data AnalysisWhere possible, we extracted data to enable the calculation of price elasticities for the target foods by personal characteristic.Results8 studies were included in the review. Across studies, the difference in price elasticity varied from 0.02 to 2.43 between groups within the same study. 11 out of the total of 18 comparisons of own-price elasticity estimates by personal characteristic differed by more than 0.2 between groups. Income related factors were the most commonly considered and there was an indication that own-price elasticity estimates do vary by income but the direction of this effect was not clear.ConclusionExperimental studies provide an opportunity to examine the differential effects of fiscal measures to improve population diets. Patterns in price sensitivity by personal characteristics are complex. General conclusions pertaining to the effects of personal characteristics on price sensitivity are not supported by the evidence, which shows heterogeneity between studies and populations.Trial RegistrationPROSPERO CRD42014009705

Identifying Water Prices at which Australian Farmers Will Exit Irrigation: Results of a Stated Preference Survey

Among the measures taken by the Australian government to address one of the worst droughts on record in the Murray‐Darling Basin, exit package issues have rarely been investigated. A stated preference survey was designed to identify the range of water prices required for irrigators to sell all their water entitlements and leave the irrigation industry. Farmer participation responses are generally price elastic. There are large regional differences in price elasticities, but within a region there are few differences based on subgroups of farmers.

Differences in price elasticities of demand for health insurance: a systematic review.

Many health insurance systems apply managed competition principles to control costs and quality of health care. Besides other factors, managed competition relies on a sufficient price-elastic demand. This paper presents a systematic review of empirical studies on price elasticity of demand for health insurance. The objective was to identify the differing international ranges of price elasticity and to find socio-economic as well as setting-oriented factors that influence price elasticity. Relevant literature for the topic was identified through a two-step identification process including a systematic search in appropriate databases and further searches within the references of the results. A total of 45 studies from countries such as the USA, Germany, the Netherlands, and Switzerland were found. Clear differences in price elasticity by countries were identified. While empirical studies showed a range between -0.2 and -1.0 for optional primary health insurance in the US, higher price elasticities between -0.6 and -4.2 for Germany and around -2 for Switzerland were calculated for mandatory primary health insurance. Dutch studies found price elasticities below -0.5. In consideration of all relevant studies, age and poorer health status were identified to decrease price elasticity. Other socio-economic factors had an unclear impact or too limited evidence. Premium level, range of premiums, homogeneity of benefits/coverage and degree of forced decision were found to have a major influence on price elasticity in their settings. Further influence was found from supplementary insurance and premium-dependent employer contribution.

Peak-load pricing in public transport: a case study of Stockholm

This paper studies how the price affects the demand for public transport in the peak- and off-peak period in the public transport in Stockholm. Further, the study investigates how differences in price elasticities of demand in the peak- and off-peak period can enable an increase in revenues as well as the total number of passengers while dampening the peak-load problem through price discrimination. The data is set up to examine the effect of the price on the number of passengers travelling by subway from January 1999 to December 2008. A number of control variables are used to isolate the effect of a price change in our econometric model. Thereafter, the elasticities of demand for each period are calculated in order to find Ramsey prices that can be used when a monopoly firm maximizes profit and minimizes the welfare loss. The study concludes that the price elasticities of demand differ between the peak- and the off-peak period and that SL should charge a higher price in the peak-period and a lower price in the off-peak period to both increase their revenue, the total number of passengers, and reduce their problems associated with the peak-load demand.

Impact of Food Contamination on Brands: A Demand Systems Estimation of Peanut Butter

A 2007 food-borne illness incident involving peanut butter is linked with structural change in consumer demand. Compensated and uncompensated own- and cross-price elasticities and expenditure elasticities were calculated for leading brands before and after the product recall using the Barten synthetic model and weekly time-series data from 2006 through 2008. Statistically significant differences in price elasticities for the affected brand, Peter Pan, were absent. After a period of 27 weeks, this brand essentially recovered from the food safety crisis. Significant differences in price elasticities were evident among non-affected brands. Hence, spillover effects and heightened competition are associated with the recall.

Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry

The Internet has brought consumers increased access to information to make purchase decisions. One of the expected consequences is an increase in the price elasticity of demand, or the percent change in demand caused by a percent change in price, because consumers are better able to compare offerings from multiple suppliers. In this paper, we analyze the impact of the Internet on demand, by comparing the demand functions in the Internet and traditional air travel channels. We use a data set that contains information for millions of records of airline ticket sales in both online and offline channels. The results suggest that consumer demand in the Internet channel is more price elastic for both transparent and opaque online travel agencies (OTAs), in part, because of more leisure travelers self-selecting the online channel, relative to business travelers. Yet, after controlling for this channel self-selection effect, we still find differences in price elasticity across channels. We find that the opaque OTAs are more price elastic than the transparent OTAs, which suggests that product information can mitigate the price pressures that arise from Internet-enabled price comparisons. We discuss the broader implications for multichannel pricing strategy and for the transparency-based design of online selling mechanisms.

An empirical investigation of the welfare effects of banning wholesale price discrimination

Economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination: if downstream cost differences exist, then discrimination shifts production inefficiently, toward high‐cost retailers, so a ban increases welfare; if differences in price elasticity of demand across retailers exist, discrimination may increase welfare if quantity sold increases, so a ban reduces welfare. Using retail prices and quantities of coffee brands sold by German retailers, I estimate a model of demand and supply and separate cost and demand differences. Simulating a ban on wholesale price discrimination has positive welfare effects in this market, and less if downstream cost differences shrink, or with less competition.

Where to Sell the Next Cappuccino? Income Per Capita and Coffee Consumption

This paper estimates the world demand for coffee using a dataset for 88 countries from 1990 to 2005, and dynamic panel data estimators. Results suggest that the income elasticity of demand is non constant and varies according to a country’s income level. Higher income countries have lower income elasticities than middle and low income ones. Differences in price elasticities are not significant across income groups.

Lealdade à marca e sensibilidade ao preço: um estudo da escolha da marca pelo consumidor

Este artigo empírico usa dados escaneados em painel de domicílios para estimar e analisar a elasticidade-preço da escolha da marca em dois grupos de clientes: os leais e os não leais à marca de uma categoria de bem de consumo. O objetivo principal é verificar diferenças de sensibilidade ao preço entre os grupos de consumidores na escolha da marca. O método usado para a análise dos dados é o da Máxima Verossimilhança, com a abordagem da maximização da utilidade, empregando-se o modelo logit misto, com dois tipos de vetores de parâmetros: o de características dos domicílios e o de atributos das marcas. Os resultados indicam que a diferença de sensibilidade ao preço entre os consumidores varia de acordo com as marcas. Com isto, conclui-se que profissionais de marketing podem tomar decisões mais efetivas de apreçamento levando em conta as características dos domicílios e os atributos das marcas. Considerando que a disponibilidade de dados escaneados no Brasil aumentou consideravelmente desde o início da década de 1990, esta ferramenta de análise pode ser útil ao setor varejista brasileiro.

An empirical analysis of energy demand in Namibia

Using a unique database of end-user local energy data and the recently developed Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration, we estimate the long-run elasticities of the Namibian energy demand function at both aggregated level and by type of energy (electricity, petrol and diesel) for the period 1980–2002. Our main results show that energy consumption responds positively to changes in GDP and negatively to changes in energy price and air temperature. The differences in price elasticities across fuels uncovered by this study have significant implications for energy taxation by Namibian policy makers. We do not find any significant cross-price elasticities between different fuel types.

Switching costs, price sensitivity and health plan choice

We investigate the extent to which sensitivity to health plan premiums differs across individuals according to characteristics related to the cost of switching plans. Our results indicate substantial variation in price sensitivity related to expected health care costs: younger, healthier employees are between two and four times more sensitive to price than employees who are older and who have been recently hospitalized or diagnosed with cancer. We also find evidence of status quo bias: estimated premium elasticities are significantly higher for new hires than for incumbent employees. Simulations combining our results with actuarial data illustrate the cost implications of risk-related differences in price elasticity.

Quantifying Discrimination in Home Mortgage Lending: Estimation of Loan Price Elasticities Across Products and Races

This paper uses individual loan data for a national lender to estimate loan price elasticities across loan products and racial groups. The data contain detail on closing dates and prices, enabling control for market volatility and construction of pseudo-prices for foregone products. The empirical mode is a mixed multinomial and conditional logit which is rooted in a structural utility framework. Asymptotic standard errors for the elasticity estimates are generated with the bootstrap and allow the inference that minorities are nearly perfectly insensitive to price, whereas whites are highly sensitive to price. The racial differences in price elasticities may indicate pre-application discrimination and provide incentive for rational (price) discrimination.They also suggest that empirical assessment of discrimination must confront non-random sorting of borrowers across products to avoid biased estimates of discrimination.

Demand systems with unit values:: A comparison of two specifications

Household expenditure surveys recording quantities allow the estimation of price reactions on the basis of unit values. Comparing two specifications that account for quality effects in unit values, we find large differences in price elasticities and even sign reversals.