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Consumer stockpiling and demand elasticity biases: A theoretical note with applications

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  • Ruochen Li

Abstract

Consumer stockpiling can result in biased empirical estimates of own‐ and cross‐price elasticities of demand with significant implications for a range of policy issues. To further the theoretical understanding of such biases, I develop a simple, yet general theoretical framework. For any given demand and prices, I show both the own‐ and cross‐price elasticities biases can be over‐ or underestimated depending upon a single intuitive condition. I then illustrate the importance of these insights by applying them to some example applications, including the measurement of market power and the estimated effects of tax increases on consumption.

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  • Ruochen Li, 2021. "Consumer stockpiling and demand elasticity biases: A theoretical note with applications," Manchester School, University of Manchester, vol. 89(6), pages 610-618, December.
    • Handle: RePEc:bla:manchs:v:89:y:2021:i:6:p:610-618
    DOI: 10.1111/manc.12379
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    References listed on IDEAS

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    Cited by:

    1. Takeshi Fukasawa, 2022. "The Biases in Applying Static Demand Models under Dynamic Demand," Discussion Paper Series DP2022-18, Research Institute for Economics & Business Administration, Kobe University, revised Jul 2022.

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