TY - UNPB
T1 - The Welfare Effects of Price Advertising with Basket Shopping: Structural Estimates from Supermarket Promotions
AU - Gao, Cixiu
PY - 2015
Y1 - 2015
N2 - This paper empirically examines welfare effects of the informative price advertising in the supermarket retail industry, using structural estimation approaches and individual scanner data. Supermarket retailers use promotions (advertised price cuts) to announce sales as a competing instrument. Using a spatial model that accounts for consumer shopping behavior and retailer pricing behavior, I structurally estimate consumer demand and the marginal costs of promotion, following the discrete choice literature and moment inequality approach. The simulation results numerically show that the private promotion intensities are socially excessive. Moreover, the welfare implications are determined by the two opposite effects of price advertising: (1) the informing and therefore welfare-improving effect, and (2) the welfare-harming effect that higher transportation costs incur when promotions are used as a means of business stealing. Finally, a counterfactual experiment of online shopping, in which transportation costs are removed, is found welfare-improving.
AB - This paper empirically examines welfare effects of the informative price advertising in the supermarket retail industry, using structural estimation approaches and individual scanner data. Supermarket retailers use promotions (advertised price cuts) to announce sales as a competing instrument. Using a spatial model that accounts for consumer shopping behavior and retailer pricing behavior, I structurally estimate consumer demand and the marginal costs of promotion, following the discrete choice literature and moment inequality approach. The simulation results numerically show that the private promotion intensities are socially excessive. Moreover, the welfare implications are determined by the two opposite effects of price advertising: (1) the informing and therefore welfare-improving effect, and (2) the welfare-harming effect that higher transportation costs incur when promotions are used as a means of business stealing. Finally, a counterfactual experiment of online shopping, in which transportation costs are removed, is found welfare-improving.
M3 - Working paper
BT - The Welfare Effects of Price Advertising with Basket Shopping: Structural Estimates from Supermarket Promotions
ER -