New Empirical Generalizations on the Determinants of Price Elasticity

The importance of pricing decisions for firms has fueled an extensive stream of research on price elasticities. In an influential meta-analytical study, Tellis (1988) summarized price elasticity research findings until 1986. Empirical generalizations on price elasticity, however, require modifications because of: a) changes in market characteristics, i.e. characteristics of brands, product categories, and economic conditions, and b) changes in the research methodology to assess price elasticities. Therefore, we present a meta-analysis of price elasticity with new empirical generalizations on its determinants. Across a set 1851 price elasticities based on 81 studies, the average price elasticity is −2.62. One of the most salient findings is that over the past four decades, sales elasticities have significantly increased in magnitude, whereas share and choice elasticities have remained fairly constant. Across all determinants studied, we find that accommodating price endogeneity has the strongest (magnitude-increasing) impact on price elasticities. A striking null result is that accounting for heterogeneity does not affect elasticities significantly. We also present an analysis that explains the difference between our findings and Tellis (1988), and indicate which new price elasticity studies are most desirable.