Approximating demand dynamics in storable good industries

Arbeitspapier

This paper develops a new approach that combines firm margins, market-level industry data and a static demand model to construct sets containing unbiased estimates of long-run price elasticities for storable good industries. It obviates the need to solve the consumer's value function and can be completed within a policy-making timeframe. This methodology allows for the effect of contemporaneous and inter-temporal substitution on pricing incentives to be measured by dynamic diversion ratios. Together with the margins, these are key inputs into a new price pressure test for mergers in industries with dynamic demand. This framework is applied to the UK laundry detergent industry from 2002 to 2012. I conduct two policy experiments that show how estimated sets of bias-corrected price elasticities and diversion ratios can be used to avoid misguided policy-decisions. In both cases demonstrating the efficacy of set-valued policy tools.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: cemmap working paper ; No. CWP57/20

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Empirical Analysis ; Quantitative Policy Modeling ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Antitrust Issues and Policies: General ; Other Consumer Nondurables: Clothing, Textiles, Shoes, and Leather Goods; Household Goods; Sports Equipment
• Subject: dynamic demand ; storable goods ; price elasticities ; diversionratios ; GUPPI

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Crawford, Alan
• Event: Veröffentlichung
• (who): Centre for Microdata Methods and Practice (cemmap)
• (where): London
• (when): 2020

Further information

• DOI: doi:10.47004/wp.cem.2020.5720
• Handle: http://hdl.handle.net/10419/241932
• Last update: 10.03.2025, 11:43 AM CET