TY  - JOUR
AU  - Hendel,Igal
AU  - Nevo,Aviv
TI  - Measuring the Implications of Sales and Consumer Inventory Behavior
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11307
PY  - 2005
Y2  - May 2005
UR  - http://www.nber.org/papers/w11307
L1  - http://www.nber.org/papers/w11307.pdf
N1  - Author contact info:
Igal Hendel
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8226
Fax: 847/491-7001
E-Mail: igal@northwestern.edu

Aviv Nevo
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208-2600
Tel: 847/491-8212
Fax: 847/491-7001
E-Mail: nevo@northwestern.edu
AB  - Temporary price reductions (sales) are common for many goods and naturally result in large increases in the quantity sold. Demand estimation based on temporary price reductions may mis-measure the long run responsiveness to prices. In this paper we quantify the extent of the problem and assess its economic implications. We structurally estimate a dynamic model of consumer choice using two years of scanner data on the purchasing behavior of a panel of households. The results suggest that static demand estimates, which neglect dynamics: (i) overestimate own price elasticities by 30 percent; (ii) underestimate cross-price elasticities to other products by up to a factor of 5; and (iii) overestimate the substitution to the no purchase, or outside option, by over 200 percent.
ER  -