Sales: Tests of Theories on Causality and Timing

Modern theories of sales make conflicting predictions about the temporal pattern of sales, which we test using grocery scanner data. We examine both frozen orange juice, which consumers can store, and refrigerated orange juice, which is more perishable, to determine what role—if any—durability plays in the pattern of sales. We start with a simple reduced-form probit analysis to examine the timing of sales and whether sales are determined nationally by manufacturers or locally by retailers. We then turn to a vector autoregressive analysis and conduct Granger tests of temporal ordering (“causality tests”) to determine whether the sale of one brand is followed in a predictable way by the sale of another brand or its own later sales. Based on the VAR estimates, we simulate impulse responses to determine the magnitude of these time-series effects. In fact, none of the theories of sales fully describes sale patterns and price distributions. We find product durability makes little difference in sales patterns. We show that, contrary to all the existing theories, retailers rather than manufacturers determine sales. Despite sale patterns not being significantly different for national brands and private label brands, our formal Granger causality analysis shows that a sale of a national brand is more likely to “cause” sales of other products than is a sale of a private label product.