IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp1680.html
   My bibliography  Save this paper

Consumer Stockpiling and Sales Promotions

Author

Listed:
  • Anna Lu

Abstract

In retailing markets of storable goods, consumer behavior is typically characterized by stockpiling. While existing research has developed rich models for such strategic consumer behavior, little is known about how sellers should ideally respond to it. In this paper, we provide insights into how frequency and depth of promotions affect consumer purchases and seller revenues in the long run. We show an application to the U.S. market for laundry detergent. We use estimates from a structural dynamic demand model to simulate different pricing policies and find that in the detergent market, an increase in promotion depth is more effective than a change in promotion length. Our results suggest that this finding can be translated to markets with a large heterogeneity in storage costs and steady consumption rates.

Suggested Citation

  • Anna Lu, 2017. "Consumer Stockpiling and Sales Promotions," Discussion Papers of DIW Berlin 1680, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1680
    as

    Download full text from publisher

    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.563919.de/dp1680.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Timothy Richards, 2007. "A nested logit model of strategic promotion," Quantitative Marketing and Economics (QME), Springer, vol. 5(1), pages 63-91, March.
    3. Tülin Erdem & Susumu Imai & Michael Keane, 2003. "Brand and Quantity Choice Dynamics Under Price Uncertainty," Quantitative Marketing and Economics (QME), Springer, vol. 1(1), pages 5-64, March.
    4. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
    5. Imran S. Currim & Linda G. Schneider, 1991. "A Taxonomy of Consumer Purchase Strategies in a Promotion Intensive Environment," Marketing Science, INFORMS, vol. 10(2), pages 91-110.
    6. K. Sudhir, 2001. "Competitive Pricing Behavior in the Auto Market: A Structural Analysis," Marketing Science, INFORMS, vol. 20(1), pages 42-60, January.
    7. Stephan Seiler, 2013. "The impact of search costs on consumer behavior: A dynamic approach," Quantitative Marketing and Economics (QME), Springer, vol. 11(2), pages 155-203, June.
    8. Arcidiacono, Peter & Hotz, V. Joseph & Kang, Songman, 2012. "Modeling college major choices using elicited measures of expectations and counterfactuals," Journal of Econometrics, Elsevier, vol. 166(1), pages 3-16.
    9. Salop, S & Stiglitz, J E, 1982. "The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents," American Economic Review, American Economic Association, vol. 72(5), pages 1121-1130, December.
    10. Hong, Pilky & McAfee, R. Preston & Nayyar, Ashish, 2002. "Equilibrium Price Dispersion with Consumer Inventories," Journal of Economic Theory, Elsevier, vol. 105(2), pages 503-517, August.
    11. van der Klaauw, Wilbert & Wolpin, Kenneth I., 2008. "Social security and the retirement and savings behavior of low-income households," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 21-42, July.
    12. David Besanko & Jean-Pierre Dubé & Sachin Gupta, 2003. "Competitive Price Discrimination Strategies in a Vertical Channel Using Aggregate Retail Data," Management Science, INFORMS, vol. 49(9), pages 1121-1138, September.
    13. K. Sudhir, 2001. "Competitive Pricing Behavior in the US Auto Market: A Structural Analysis," Yale School of Management Working Papers ysm228, Yale School of Management.
    14. Michaela Draganska & Dipak C. Jain, 2006. "Consumer Preferences and Product-Line Pricing Strategies: An Empirical Analysis," Marketing Science, INFORMS, vol. 25(2), pages 164-174, 03-04.
    15. David Besanko & Sachin Gupta & Dipak Jain, 1998. "Logit Demand Estimation Under Competitive Pricing Behavior: An Equilibrium Framework," Management Science, INFORMS, vol. 44(11-Part-1), pages 1533-1547, November.
    16. Vrinda Kadiyali, 1996. "Entry, Its Deterrence, and Its Accommodation: A Study of the U.S. Photographic Film Industry," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 452-478, Autumn.
    17. Anna, Petrenko, 2016. "Мaркування готової продукції як складова частина інформаційного забезпечення маркетингової діяльності підприємств овочепродуктового підкомплексу," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 2(1), March.
    18. Harikesh Nair, 2007. "Intertemporal price discrimination with forward-looking consumers: Application to the US market for console video-games," Quantitative Marketing and Economics (QME), Springer, vol. 5(3), pages 239-292, September.
    19. Howard Smith, 2004. "Supermarket Choice and Supermarket Competition in Market Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(1), pages 235-263.
    20. Frank Verboven, 2002. "Quality-Based Price Discrimination and Tax Incidence: Evidence from Gasoline and Diesel Cars," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 275-297, Summer.
    21. Tiago Pires, 2016. "Costly search and consideration sets in storable goods markets," Quantitative Marketing and Economics (QME), Springer, vol. 14(3), pages 157-193, September.
    22. Stephan Seiler, 2013. "The impact of search costs on consumer behavior: A dynamic approach," Quantitative Marketing and Economics (QME), Springer, vol. 11(2), pages 155-203, June.
    23. Jun Li & Nelson Granados & Serguei Netessine, 2014. "Are Consumers Strategic? Structural Estimation from the Air-Travel Industry," Management Science, INFORMS, vol. 60(9), pages 2114-2137, September.
    24. Jeuland, Abel P & Narasimhan, Chakravarthi, 1985. "Dealing-Temporary Price Cuts-by Seller as a Buyer Discrimination Mechanism," The Journal of Business, University of Chicago Press, vol. 58(3), pages 295-308, July.
    25. Rust, John, 1996. "Numerical dynamic programming in economics," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 14, pages 619-729, Elsevier.
    26. H. M. Amman & D. A. Kendrick & J. Rust (ed.), 1996. "Handbook of Computational Economics," Handbook of Computational Economics, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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.
    2. Avery Haviv, 2022. "Consumer Search, Price Promotions, and Counter-Cyclic Pricing," Marketing Science, INFORMS, vol. 41(2), pages 294-314, March.
    3. Navid Mojir & K. Sudhir, 2014. "A Model of Multi-pass Search: Price Search across Stores and Time," Cowles Foundation Discussion Papers 1942R2, Cowles Foundation for Research in Economics, Yale University, revised Feb 2020.
    4. Andriy Norets, 2009. "Inference in Dynamic Discrete Choice Models With Serially orrelated Unobserved State Variables," Econometrica, Econometric Society, vol. 77(5), pages 1665-1682, September.
    5. Navid Mojir & K. Sudhir, 2014. "Price Search Across Time and Across Stores," Cowles Foundation Discussion Papers 1942R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2019.
    6. Gonca P. Soysal & Lakshman Krishnamurthi, 2012. "Demand Dynamics in the Seasonal Goods Industry: An Empirical Analysis," Marketing Science, INFORMS, vol. 31(2), pages 293-316, March.
    7. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
    8. 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.
    9. Yonezawa, Koichi & Richards, Timothy J., 2016. "Competitive Package Size Decisions," Journal of Retailing, Elsevier, vol. 92(4), pages 445-469.
    10. D'Haultfoeuille, Xavier & Gaillac, Christophe & Maurel, Arnaud, 2018. "Rationalizing Rational Expectations? Tests and Deviations," IZA Discussion Papers 11989, Institute of Labor Economics (IZA).
    11. Pradeep Chintagunta & Tülin Erdem & Peter E. Rossi & Michel Wedel, 2006. "Structural Modeling in Marketing: Review and Assessment," Marketing Science, INFORMS, vol. 25(6), pages 604-616, 11-12.
    12. Ken Moon & Kostas Bimpikis & Haim Mendelson, 2018. "Randomized Markdowns and Online Monitoring," Management Science, INFORMS, vol. 64(3), pages 1271-1290, March.
    13. Fabio Antoniou & Raffaele Fiocco, 2023. "Storable Good Market With Intertemporal Cost Variations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 361-385, February.
    14. Février, Philippe & Wilner, Lionel, 2016. "Do consumers correctly expect price reductions? Testing dynamic behavior," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 25-40.
    15. Pesendorfer, Martin & Gentry, Matthew, 2018. "Price Reference Effects in Consumer Demand," CEPR Discussion Papers 13382, C.E.P.R. Discussion Papers.
    16. Javier D. Donna, 2021. "Measuring long‐run gasoline price elasticities in urban travel demand," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 945-994, December.
    17. Yusuke Hara & Eiji Hato, 2019. "Analysis of dynamic decision-making in a bicycle-sharing auction using a dynamic discrete choice model," Transportation, Springer, vol. 46(1), pages 147-173, February.
    18. Sofronis Clerides & Pascal Courty & Yupei Ma, 2023. "Store expensiveness and consumer saving: Insights from a new decomposition of price dispersion," Quantitative Marketing and Economics (QME), Springer, vol. 21(1), pages 65-94, March.
    19. Xavier D'Haultfoeuille & Christophe Gaillac & Arnaud Maurel, 2021. "Rationalizing rational expectations: Characterizations and tests," Quantitative Economics, Econometric Society, vol. 12(3), pages 817-842, July.
    20. S. Sriram & Pradeep K. Chintagunta & Manoj K. Agarwal, 2010. "Investigating Consumer Purchase Behavior in Related Technology Product Categories," Marketing Science, INFORMS, vol. 29(2), pages 291-314, 03-04.

    More about this item

    Keywords

    Promotion; Frequency; Depth; Stockpiling; Storable Goods;
    All these keywords.

    JEL classification:

    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp1680. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bibliothek (email available below). General contact details of provider: https://edirc.repec.org/data/diwbede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.