NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Best Prices: Price Discrimination and Consumer Substitution

Judith A. Chevalier, Anil K. Kashyap

NBER Working Paper No. 20768
Issued in December 2014, Revised in August 2015
NBER Program(s):Industrial Organization, Monetary Economics, Productivity, Innovation, and Entrepreneurship

We propose a method for constructing price indices when retailers use periodic sales to price-discriminate amongst heterogeneous customers. To do so, we introduce a model in which Loyal customers buy one brand and do not strategically time purchases, while Bargain Hunters always pay the lowest price available, the "best price". We derive the exact price index and demonstrate empirically that accounting for our best price construct substantially improves the match between conventional price indices and actual prices paid by consumers. We demonstrate that our methodology improves inflation measurement without imposing an unrealistically large burden on the data-collection agency.

download in pdf format
   (462 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20768

Users who downloaded this paper also downloaded* these:
Stroebel and Vavra w20710 House Prices, Local Demand, and Retail Prices
Fratto and Uhlig w20707 Accounting for Post-Crisis Inflation and Employment: A Retro Analysis
Chevalier and Kashyap w16680 Best Prices
Gorodnichenko, Sheremirov, and Talavera w20819 Price Setting in Online Markets: Does IT Click?
Cette, Lopez, and Mairesse w20563 Product and Labor Market Regulations, Production Prices, Wages and Productivity
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us