Measuring the Implications of Sales and Consumer Stockpiling Behavior

Temporary price reductions (sales) are common for many goods and naturally result in large increase in the quantity sold. In previous work we found that the data support the hypothesis that these increases are, at least partly, due to dynamic consumer behavior: at low prices consumers stockpile for future consumption. In this paper we quantify the magnitude of the effect and derive the quantitative economic implications. We construct and structurally estimate a dynamic model of consumer choice using two years of scanner data on the purchasing behavior of a panel of households. The results suggest that static demand estimates, which neglect dynamics, may overestimate own price elasticities by up to 50-80 percent.