Events

Dr. Robert Sanders
Assistant Professor
Marketing group
UC San Diego’s Rady School of Management

ABSTRACT

We present experimental evidence that suggest that the observational price variation found in typical supermarket scanner data is insufficient to recover true price elasticities. Our field experiment generated 174,076 random, in-store price changes over the course of 11 weeks, across 736 products at 82 “treated” stores of a Midwestern supermarket chain. We compare the demand elasticity estimates derived with these experimental price changes against the elasticity estimates derived with the observational (non-experimental) price changes at 34 “control” stores from the same chain. The resulting control-store estimates are systematically more negative than the treated-store estimates: the control-store estimate exceeds the corresponding treated-store estimate by more than a factor of 4.3 for half of our specifications. The gap is even wider in the difference in differences, and we cannot reconcile it by controlling for promotions, instrumenting with the chain price or lagged prices, focusing on a short time window around each price change, focusing on base-price changes, or accounting for longer-term price effects. Our results suggest that all meaningful variation in grocery prices is tainted by endogeneity.