Arbeitspapier

Timing and quantity of consumer purchases and the consumer price index

A common approach to measuring price changes is to look at the change of the expenditure needed to purchase a fixed basket of goods. It is well-known that this approach suffers from problems and creates several biases in the measurement of price changes faced by consumers. Substitution and outlet bias, two commonly studied concerns, are both driven by consumer choices of what and where to buy. However, consumers also make other choices, including how much and when to buy. We discuss the implications of consumers' timing and quantity decisions have on standard practices of computing a price index. We use household-level data on quantities purchased and prices paid to construct a measure of the savings made by consumers' optimizing behaviour in the purchase of food. In particular, we compare the prices actually paid by the consumers to various alternatives that do not allow for substitution. Our analysis suggests that the average consumer makes significant, and comparable in magnitude, savings from the four dimensions of choice that we study. Furthermore, our data suggests significant heterogeneity in consumer behavior, and that this behavior is correlated with demographics. Our findings suggest that ignoring timing and quantity decisions, when computing a price index, can generate biases on the order of magnitude of substitution and outlet biases.

Language
Englisch

Bibliographic citation
Series: CSIO Working Paper ; No. 0096

Classification
Wirtschaft
Subject
Inflationsrate
Messung
Indexberechnung
Konsumentenverhalten
Großbritannien

Event
Geistige Schöpfung
(who)
Griffith, Rachel
Leibtag, Ephraim
Leicester, Andrew
Nevo, Aviv
Event
Veröffentlichung
(who)
Northwestern University, Center for the Study of Industrial Organization (CSIO)
(where)
Evanston, IL
(when)
2008

Handle
Last update
10.03.2025, 11:46 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Griffith, Rachel
  • Leibtag, Ephraim
  • Leicester, Andrew
  • Nevo, Aviv
  • Northwestern University, Center for the Study of Industrial Organization (CSIO)

Time of origin

  • 2008

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