Consumer stockpiling and demand elasticity biases: A theoretical note with applications. (14th August 2021)

• Record Type: Journal Article
• Authors: Li, Ruochen
• Is Part Of: Manchester school. Volume 89:Number 6(2021)
• Page Start: 610
• Page End: 618
• Publication Date: 2021-08-14
• Subjects: consumer inventory -- elasticity -- storage; Economics -- Periodicals; Social sciences -- Periodicals; Economics -- Sociological aspects -- Periodicals; 330.05
• DOI: 10.1111/manc.12379
• Languages: English
• ISSNs: 1463-6786

Abstract

Abstract: Consumer stockpiling can result in biased empirical estimates of own‐ and cross‐price elasticities of demand with significant implications for a range of policy issues. To further the theoretical understanding of such biases, I develop a simple, yet general theoretical framework. For any given demand and prices, I show both the own‐ and cross‐price elasticities biases can be over‐ or underestimated depending upon a single intuitive condition. I then illustrate the importance of these insights by applying them to some example applications, including the measurement of market power and the estimated effects of tax increases on consumption.