The Kinked Demand Curve and Price Rigidity: Evidence from Scanner Data

Maarten Dossche, Freddy Heylen and Dirk Van den Poel

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: This paper uses scanner data from a large euro area retailer. We extend Deaton and Muellbauer’s Almost Ideal Demand System to estimate the price elasticity and curvature of demand for a wide range of products. Our results support the introduction of a kinked (concave) demand curve in general equilibrium macro models. We find that the price elasticity of demand is on average higher for price increases than for price decreases. However, the degree of curvature in demand is much lower than is currently imposed. Moreover, for a significant fraction of products we observe a convex demand curve.

Keywords: price setting; real rigidity; kinked demand curve; behavioral AIDS (search for similar items in EconPapers)
JEL-codes: C33 D12 E3 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2006-12
New Economics Papers: this item is included in nep-mac and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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http://wps-feb.ugent.be/Papers/wp_06_429.pdf (application/pdf)

Related works:
Journal Article: The Kinked Demand Curve and Price Rigidity: Evidence from Scanner Data (2010)
Working Paper: The kinked demand curve and price rigidity: evidence from scanner data (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:06/429

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