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Investigating the unobserved heterogeneity in consumers’ sensitivity to the price of gasoline

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  • Hojin Jung

    (Hongik University)

Abstract

We empirically examined how gasoline prices impact consumers’ shopping behaviors. Using individual panel data on gasoline transactions, we found that gasoline prices generally have a statistically and economically significant impact. However, our disaggregate analysis indicated that, across consumers, considerable heterogeneity was present in the underlying sensitivity to the price of gasoline and in the income effect, resulting from fluctuating gasoline prices. More interestingly, the significant effect of gasoline prices was largely driven by the consumers with large purchase volume, and consumers with the highest level of gasoline consumption remained almost perfectly insensitive to the price of gasoline. Such heterogeneity is also present in the effect of gasoline prices on grocery expenditures, and notably, consumers with the largest purchase volume were not associated with statistically significant changes in grocery expenditures. Theoretical background suggests that the financial constraints of consumers and primary vehicle use may explain about the differences in responses to gasoline prices. Results based on individual-level data allowed for a comprehensive understanding of how and how much gasoline prices affect consumer behaviors and showed that inelastic gasoline demand and the considerable income effect due to gasoline prices may not best describe the effect of gasoline prices.

Suggested Citation

  • Hojin Jung, 2017. "Investigating the unobserved heterogeneity in consumers’ sensitivity to the price of gasoline," Marketing Letters, Springer, vol. 28(3), pages 477-490, September.
  • Handle: RePEc:kap:mktlet:v:28:y:2017:i:3:d:10.1007_s11002-017-9427-4
    DOI: 10.1007/s11002-017-9427-4
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    References listed on IDEAS

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    Cited by:

    1. Hojin Jung, 2020. "Economic effects of ambient air pollution on consumer shopping behaviors," Economics and Business Letters, Oviedo University Press, vol. 9(3), pages 255-264.
    2. Hojin Jung, 2020. "The Impact of Ambient Fine Particulate Matter on Consumer Expenditures," Sustainability, MDPI, vol. 12(5), pages 1-13, March.

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