Between preferences and references: Evidence from Great Britain on asymmetric price elasticities

Cornelsen, Laura ; Mazzocchi, Mario ; Smith, Richard (2018) Between preferences and references: Evidence from Great Britain on asymmetric price elasticities. Bologna, IT: Dipartimento di Scienze Statistiche "Paolo Fortunati", Alma Mater Studiorum Università di Bologna, p. 34. DOI 10.6092/unibo/amsacta/5821. In: Quaderni di Dipartimento. Serie Ricerche (2018). ISSN 1973-9346.
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Abstract

Canonical demand studies and fiscal policy simulations rest on the assumption that consumers react symmetrically to price increases and decreases. We propose a theoretically consistent demand system which allows for asymmetric response by incorporating reference prices into both own- and cross-prices. Applying the system to a large and detailed home-scan household-level data-set with food prices and purchases from Great Britain, we show evidence on asymmetric consumer response and loss aversion, with a stronger response when prices rise above their reference level. Results are robust to changes in the price definition and model specification, and a simulation shows that ignoring asymmetry may lead to important biases.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Cornelsen, LauraLondon School of Hygiene and Tropical Medicine, Faculty of Public Health and Policy0000-0003-3769-8740
Mazzocchi, MarioUniversity of Bologna, Department of Statistical Sciences000-0002-0498-8031
Smith, RichardLondon School of Hygiene and Tropical Medicine, Faculty of Public Health and Policy0000-0003-3837-6559
Keywords
Reference Price, Price Elasticities, Demand System, Food Prices, Loss Aversion Prezzi di riferimento, Elasticità di prezzo, Sistema di domanda, Prezzi degli alimenti, Avversione alla perdita
Subjects
ISSN
1973-9346
DOI
Deposit date
28 Mar 2018 15:16
Last modified
22 May 2019 13:21
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