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An empirical test of the Theory of Sales: Do household storage constraints affect consumer and store behavior?

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  • David Bell
  • Christian Hilber

Abstract

We revisit and test Salop and Stiglitz (1982) Theory of Sales. Equilibrium comparative static predictions are that greater consumer storage constraints lead to: (1) higher average prices, (2) fewer promotions, and (3) shallower promotions. In equilibrium, price dispersion is nonlinear in storage constraints, first increasing then decreasing. Empirical estimates of storage constraints are developed for approximately 1,000 households using the American Housing Survey (1989), United States Census (1990), and Stanford Market Basket Database (1991–1993). We find consumers with greater storage constraints shop more often and purchase smaller quantities per visit; moreover, the comparative static predictions are supported and evidence consistent with the equilibrium dispersion prediction is observed. Estimated quantitative effects are economically important. Copyright Springer Science + Business Media, LLC 2006

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  • David Bell & Christian Hilber, 2006. "An empirical test of the Theory of Sales: Do household storage constraints affect consumer and store behavior?," Quantitative Marketing and Economics (QME), Springer, vol. 4(2), pages 87-117, June.
    • Handle: RePEc:kap:qmktec:v:4:y:2006:i:2:p:87-117
    DOI: 10.1007/s11129-006-8127-9
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    2. Francesco Nava & Pasquale Schiraldi, 2014. "Sales And Collusion In A Market With Storage," Journal of the European Economic Association, European Economic Association, vol. 12(3), pages 791-832, June.
    3. Jeffrey R. Campbell & Benjamin Eden, 2014. "Rigid Prices: Evidence From U.S. Scanner Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(2), pages 423-442, May.
    4. Thierry Magnac & Pierre Dubois, 2016. "Consumer Demand with Unobserved Stockpiling and Intertemporal Price Discrimination," 2016 Meeting Papers 451, Society for Economic Dynamics.
    5. Paul C. Cheshire & Christian A. L. Hilber & Ioannis Kaplanis, 2012. "Evidence from a UK supermarket chain," Working Papers 2012/15, Institut d'Economia de Barcelona (IEB).
    6. Chen, Pingping & Zhao, Ruiqing & Yan, Yingchen & Li, Xiang, 2020. "Promotional pricing and online business model choice in the presence of retail competition," Omega, Elsevier, vol. 94(C).
    7. Nava, Francesco, 2006. "Sales and collusion in a market with storage," LSE Research Online Documents on Economics 41959, London School of Economics and Political Science, LSE Library.
    8. Takuya Satomura & Jaehwan Kim & Greg M. Allenby, 2011. "Multiple-Constraint Choice Models with Corner and Interior Solutions," Marketing Science, INFORMS, vol. 30(3), pages 481-490, 05-06.
    9. Stephan Seiler, 2010. "The impact of search costs on consumer behavior: a dynamic approach," 2010 Meeting Papers 559, Society for Economic Dynamics.
    10. Christoph Stallkamp & Florian Diehlmann & Markus Lüttenberg & Marcus Wiens & Rebekka Volk & Frank Schultmann, 2022. "On the combination of water emergency wells and mobile treatment systems: a case study of the city of Berlin," Annals of Operations Research, Springer, vol. 319(1), pages 259-290, December.
    11. Masayoshi Maruyama & Le Viet Trung, 2009. "High shopping frequency of Vietnamese consumers: theory and measurement," Applied Economics Letters, Taylor & Francis Journals, vol. 16(4), pages 411-415.
    12. Paul C. Cheshire & Christian A. L. Hilber & Ioannis Kaplanis, 2015. "Land use regulation and productivity—land matters: evidence from a UK supermarket chain," Journal of Economic Geography, Oxford University Press, vol. 15(1), pages 43-73.
    13. Jeonghye Choi & David R. Bell & Leonard M. Lodish, 2012. "Traditional and IS-Enabled Customer Acquisition on the Internet," Management Science, INFORMS, vol. 58(4), pages 754-769, April.
    14. Paul C. Cheshire & Christian A. L. Hilber & Ioannis Kaplanis, 2012. "Evidence from a UK supermarket chain," Working Papers 2012/15, Institut d'Economia de Barcelona (IEB).
    15. Breugelmans, Els & Campo, Katia, 2016. "Cross-Channel Effects of Price Promotions: An Empirical Analysis of the Multi-Channel Grocery Retail Sector," Journal of Retailing, Elsevier, vol. 92(3), pages 333-351.

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